The GBP/USD pair gained some positive traction during the early part of 2019 but then recorded some heavy losses over the subsequent six months and dropped to levels below the key 1.20 psychological mark in early September. The pair then rallied nearly 12%, hitting its highest level since May 2018 during the latter half of December in reaction to a landslide victory for the incumbent Conservative Party in the most important UK Parliamentary elections on December 12. The outcome is expected to break the longstanding gridlock and provide a clear path for ratification of the Withdrawal Agreement before the January 31, 2020 deadline.
GBP/USD drops below 1.31 amid USD strength, fails to sustain PMI gains
GBP/USD is trading below 1.31 after hitting a fresh high of 1.3172. The UK Manufacturing PMI beat with 49.8 and Services PMI with 52.9. The USD is gaining ground across the board.
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Looking at the technical picture, the pair stalled its recent positive momentum near a resistance marked by 38.2% Fibonacci level of the 1.3515-1.2905 recent pullback. However, the fact that the pair has already confirmed a near-term break through a descending triangle, the near-term technical set-up seems tilted in favour of bullish traders. A sustained move beyond the weekly swing highs, around mid-1.3100s, will reaffirm the constructive outlook and set the stage for a move back towards reclaiming the 1.3200 round-figure mark. The momentum could further get extended towards mid-1.3200s and late December/early January swing high resistance near the 1.3285 region.
On the flip side, any pullback might continue to attract some dip-buying near the 1.3100 round-figure mark, which coincides with 200-period SMA on the 4-hourly chart and should help limit the downside. The triangle resistance breakpoint, currently near the 1.3070-65 region, now seems to act as strong support, which if broken might prompt some near-term weakness. The pair then might turn vulnerable to accelerate the slide back towards challenging the key 1.30 psychological mark with some intermediate support near mid-1.3000s (23.6% Fibo. level).
The GBP/USD pair edged lower on Thursday and eroded a part of the previous session's goodish positive move to two-week tops. As investors assessed the possibility of a BoE rate cut at its upcoming meeting on January 30, a modest pickup in the US dollar demand prompted some long-unwinding trade on Thursday. Concerns over China's coronavirus outbreak turned out to be one of the key factors that benefitted the greenback's perceived safe-haven status against its British pound.
Apart from a modest USD uptick, the pullback lacked any obvious fundamental catalyst and thus, lacked any strong follow-through. The pair quickly reversed an intraday dip to sub-1.3100 levels, albeit ended the day with modest losses and snapped three consecutive days of winning streak. The pair held steady above the mentioned handle through the Asian session on Friday. Heading into next week's BoE policy decision, the flash version of the UK Manufacturing and Services PMI prints for January will play a key role in influencing the pair's momentum on the last trading day of the week.