GBP/USD prediction after weak UK PMIs and retail sales data
- The GBP/USD declined below the double-top pattern.
- The pair reacted to the weak UK PMI and retail sales data.
- The flash PMIs showed that the country is struggling as the number of Covid cases rise.
The GBP/USD price retreated on Friday after the latest UK retail sales and flash manufacturing and services PMI numbers. The pair fell to 1.1.3730, which is a few pips below this week’s high of 1.3786.
UK retail sales and PMI numbers
According to the latest data by the Office of National Statistics (ONS), the strong UK economic recovery seems to be slowing down. Data published earlier Friday showed that the country’s retail sales rose by 0.5% in June after falling by 1.3% in the previous month. The sales rose by 9.7% on a year-on-year basis.
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While this was a good number, it was driven by the European football tournament, which is a one-off event. Indeed, the flash retail sales rose by 0.3% and 7.4% on a MoM and YoY basis. This growth was slower than the median estimates of 0.6% and 8.2%.
Meanwhile, further data by Markit revealed that the flash UK manufacturing and services PMI number also disappointed. The flash services PMI declined from 62.4 in June to 57.8 in July. On the other hand, the manufacturing PMI declined from 63.9 to 60.4 while the composite PMI fell from 62.2 to 57.7.
The researchers attributed this decline to the rising number of Covid cases even as the country reopens. The report said:
“July saw the UK economy’s recent growth spurt stifled by the rising wave of virus infections, which subdued customer demand, disrupted supply chains and caused widespread staff shortages.”
The GBP/USD is also sliding as the market reflect on the new Brexit challenges. The new challenge relates to the UK demand that the two sides should renegotiate the deal to address the Northern Ireland issue. The UK wants to remove the customs checks that exist between Northern Ireland and Great Britain.
The hourly chart shows that the GBP/USD pair formed a double-top pattern at the 1.3780 level. It is now trading between the 50-day and 25-day moving averages while the Relative Strength Index has moved from the overbought level to 45. Other oscillators like the moving average convergence divergence (MACD) and Stochastics have also crashed.
Therefore, the pair will likely maintain moving lower as traders target the 38.2% retracement level at 1.3695. On the flip side, a move above 1.3777 will invalidate this prediction.
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