Article by ForexTime

The GBP/USD has been drifting lower over the past couple of trading sessions. Cable has breached below 1.6100 and its 200-week moving average at 1.6089, while negative momentum is taking hold. A sub-forecast U.K. service PMI figure for September, helped drive the composite PMI to six-month low, generating headwinds for the currency pair and fits with the slowing pace of economic recovery. The data also follows remarks by BoE MPC member Broadbent, who said earlier in the week that the economy is not ready for a rate hike.

Market participants are still anticipating a rate hike in Q1 next year, though with incrementally less conviction as signs that Eurozone economic stagnation is affecting the UK which is now becoming increasingly evident.

The U.K. Markit services PMI weaker than expected at 58.7 in September, a three-month low and down from August’s 60.5. The median forecast had been for a dip to 59.0. The composite PMI for September dipped to a six-month low of 58.1, down from 59.7 in August. Markit estimates that the surveys point to Q3 GDP growth of 0.8% quarter over quarter, which would be near to the 0.9% growth seen in Q2. This risk, however, as Markit points out, is that growth will disappoint during Q4 as a consequence of the stagnation in the Eurozone economy. The BoE has forecast that the recent phase of fast-paced recovery is likely to wane over the next year.

In the U.S. the September nonfarm payrolls are expected to increase by 200k, with a 195k private payroll gain.  The risk is to the upward, due continued strength in claims, confidence and sentiment. The unemployment rate is expected to hold steady at 6.1% for a second month. The workweek is expected to hold steady at 34.5 for seventh month. Hourly earnings are expected to grow 0.2% which would leave a 2.1% year over year rise.

The GBP/USD is testing the September lows at 1.6050 as negative momentum accelerates.  Resistance is seen near the 10-day moving average near 1.6250.  The MACD (moving average convergence divergence) index has generated a sell signal.  This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index has moved from positive to negative territory confirming the sell signal.

Article by ForexTime

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