- Sterling most vulnerable to risk aversion.
- Technical charts show the bears are in control.
- UK Feb services PMI (due at 09:30 GMT) – expected 53.5, previous 53.00.
Sterling ranks last on the list of anti-risk currencies and could take a beating if trade wars escalate given the UK’s big current account deficit, domestic political issues and the Brexit uncertainty.
On Friday, Prime Minister May’s speech fell flat in Brussels and it is being reported that EU proposals, due tomorrow will likely be as vague as possible in order to put the pressure back on the UK PM to explain what her country wants.
Further, the technical setup favors downside in the pair.
- The daily chart shows falling tops pattern. Also, the pair closed last Wednesday below the ascending trendline (drawn from the Nov. 13 low and Dec. 26 low) and the 50-day moving average (MA).
- The 5-day MA and the 10-day MA are biased bearish (sloping downwards).
- Also, the relative strength index (RSI) favors the bears.
So, it is quite clear the GBP/USD pair is on the back foot ahead of the UK services PMI release. The data due at 09:30 GMT is expected to show the pace of expansion in the service sector improved slightly in February.
An above-forecast (53.5) number could strengthen the British Pound, although gains could be transient if equities remain risk-averse. On the other hand, a weaker-than-expected number would allow for a deeper sell-off in the Pound.
GBP/USD Technical Levels
The spot traded around 1.3790 in Asia. A break below 1.3765 (Feb. 9 low) would open up downside towards 1.3712 (Mar. 1 low) and 1.37 (psychological level). On the higher side, a daily close above the 50-day MA of 1.3839 would allow for a stronger rally to 1.3892 (4-hour 50-MA) and 1.3921 (4-hour 100-MA).