Bearish engulfing on GBP, weaker data

3 February, 2017

GBPUSD turned lower after yesterday’s bearish engulfing formed within a crucial resistance area, the upper bound of the consolidation at 1.27. There is a chance for a three outside down pattern and a distinct leg lower. Price drops towards the nearest support area above the psychological level of 1.24. If it is broken below, price could drop to the lower bound of the consolidation at 1.20. The medium-term trend remains bearish. 

GBPUSD rebounded from the upper bound of the consolidation and turned lower with a massive bearish momentum, source: xStation5

GBP ended yesterday’s session with a 1-percent loss to the USD, even though it was a bad day for the dollar either. The markets should be happy however with at least some information on the fiscal stimulus in the US - it is going to come, but with some delay. It was a Super Thursday today in the UK, meaning a day of the BoE decision, statement, projections and a press conference. It was even more ’super’ due to the release by the government of the Brexit white paper explaining somewhat more the 12 pillars of Brexit negotiation strategy. More of positive data (construction PMI) and all the communication from BoE, and even more details on Brexit negotiation strategy (while more clarity on the issue seemed to lift the currency in recent weeks), all failed to lift the GBP.

Today we got PMI services from the UK, the sector growth eased at start of 2017. According to Markit, the January survey still point to a buoyant start to 2017 for the UK economy. The PMI surveys are collectively signalling that GDP will increase by a robust 0.5% in the first quarter, if current growth is sustained in coming months. PMI services came at 54.5 with expectations at 55.8 and prior reading at 56.2. Market is definitely disappointed and the drop on GBP has only accelerated post the reading.. Yet keep in mind that business optimism has risen for the second month in a row, according to Markit, the sector has defied the Brexit doomsayers and is poised to maintain growth in 2017.

UK services sector continues expansion but the reading came below market’s expectations, source: Markit

Earlier today we got an interview with BoE’s Broadbent who said that higher confidence after Trump victory will help UK economy. He also added that UK consumers do face a more challenging environment in 2017.

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