GBP/USD whipsaws on Monday as investor sentiment corkscrews

GBP/USD

FXStreetJul 2, 2024 12:22 AM

GBP/USD briefly broke above 1.2700 before slumping back to opening bids.
US data sparks rate cut hopes, then recession fears.
Investor confidence jolted by US election risks, volatility ensues.

GBP/USD rallied briefly above the 1.2700 handle on Monday before US markets knocked back investor confidence, sparking a risk-off bid into the US Dollar and dragging Cable back down to the day’s opening bids near 1.2650.

Forex Today: All the attention shifts to Powell

US data broadly missed the mark. US ISM Manufacturing Purchasing Manager Index (PMI) figures declined in June, falling to 48.5 from 48.7 and entirely missing the forecast increase to 49.1. US ISM Manufacturing Prices Paid also declined sharply in June, falling to 52.1 from the previous 57.0, falling even further beyond the forecast decline to 55.9.

US markets were abruptly jolted into fresh risk concerns over the upcoming Presidential election slated for November. A recent public debate left the waters murky on who the clear frontrunner would be, and the US Supreme Court released a ruling on Monday stating that courts have limited capacity to levy criminal charges against sitting Presidents.

The UK has a thin economic data docket this week, though GBP traders will be keeping an eye out for Parliamentary elections on the book for Thursday. On the US side, investors will be looking ahead to Tuesday’s appearance from Federal Reserve (Fed) Chairman Jerome Powell, followed by ADP Employment Change figures on Wednesday and Friday’s latest iteration of US Nonfarm Payrolls (NFP) and Average Hourly Earnings for June.

Economic Indicator

ISM Manufacturing PMI

The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI), released on a monthly basis, is a leading indicator gauging business activity in the US manufacturing sector. The indicator is obtained from a survey of manufacturing supply executives based on information they have collected within their respective organizations. Survey responses reflect the change, if any, in the current month compared to the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the US Dollar (USD). A reading below 50 signals that factory activity is generally declining, which is seen as bearish for USD.

Why it matters to traders?

The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) provides a reliable outlook on the state of the US manufacturing sector. A reading above 50 suggests that the business activity expanded during the survey period and vice versa. PMIs are considered to be leading indicators and could signal a shift in the economic cycle. Stronger-than-expected prints usually have a positive impact on the USD. In addition to the headline PMI, the Employment Index and the Prices Paid Index numbers are watched closely as they shine a light on the labour market and inflation.

GBP/USD technical outlook

Despite a near-term bull run to kick off the new trading week, Cable bidders were unable to keep the pressure up, and GBP/USD tumbled back below the 200-hour Exponential Moving Average (EMA) at 1.2665. Price action still favors shorts, and downside targets will be set below last week’s late low near 1.2615.

Daily candlesticks remain mired in a volatility trap between the 50-day and 200-day EMAs at 1.2668 and 1.2592, respectively. Near-term momentum still leans bearish as GBP/USD continues to drift lower after mid-June’s brief peak above 1.2850.

GBP/USD hourly chart

GBP/USD daily chart

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