On Tuesday, Prime Minister Stirling acknowledged something that the economic indicators have been hinting at: the UK lacks a growth narrative right now. The preliminary Purchasing Managers’ Index (PMI) for June fell short of expectations across various sectors, with the service index dropping to 48.7, below the anticipated 50.0, indicating a deeper move into contraction. In response to this news, the currency, known as cable, traded just below 1.3200, but a late surge pushed it somewhat higher. Still, prospects for recovery feel flimsy. The pound continued its decline, staying within its current monthly range.
unexpected uptick
It’s curious—despite all local indicators signaling a downturn, the pound managed to rise, even while the US PMI numbers were strong, bolstering the dollar. The upward movement didn’t seem to stem from British economic data, nor was there any alteration in the Bank of England’s (BoE) interest rate stance. It appeared more as a brief short-covering reaction than anything tied to the pound itself. The intraday momentum showed some consistency, and the Stochastic Relative Strength Index (Stoch RSI) reversed as the pullback stumbled around 1.3200. However, looking at the daily chart, the underlying trend remains definitely bearish, with the price lingering well below the 50-day exponential moving average (EMA) around 1.3400, and the 200-day EMA just beneath that. The pound still seems to be struggling.
lack of supporting data
Moving forward, the economic calendar appears unhelpful for those looking for Sterling to find its footing. There aren’t any significant UK reports scheduled for the rest of the week, leaving only a few BoE speakers as potential domestic stimuli. Most of these speakers lean towards dovish sentiments. Even with the Prime Minister’s resignation, Downing Street seems at a standstill, lacking any concrete plans to spur growth. This situation means the pound may drift along for the remainder of the week, primarily influenced by fluctuations in the dollar.
Thursday’s PCE as a potential trigger
The main market movement is expected at 12:30 GMT on Thursday, when the US publishes the Federal Reserve’s key inflation indicator, the Personal Consumption Expenditure Price Index (PCE) for May. The core PCE showed a monthly increase of 0.3% and a yearly jump to 3.4%, both higher than previous figures. This strong result would back up the Fed’s hawkish stance from last week and suggest a bullish outlook on its dot plot.
There’s no longer any pricing in of short-term easing, and this upside surprise would likely reinforce dollar strength, pushing the cable closer to previous lows. That same timeframe will see the final first-quarter gross domestic product (GDP) data, durable goods orders, unemployment claims, and additional remarks from Federal Reserve officials over both days. Friday’s University of Michigan sentiment and inflation expectations report will be more of a side note.
monitoring key levels
Resistance: The initial resistance is around 1.3250 near Tuesday’s trading peak, with further resistance at 1.3300. The significant barrier appears to be around 1.3400, where the 50-day and 200-day EMAs are converging. Until the cable can reclaim this area, any rallies may present selling opportunities rather than signs of a shift.
Support: The crucial support level is close to a recent low around 1.3150, which also corresponds to April’s bottom and represents the lower range for this year. A daily close beneath this level would confirm a breakdown, potentially leading to a new low at 1.3100. A buying reaction followed Tuesday’s dip below 1.3200, but lacking any domestic catalysts, this support serves as a temporary speed bump, not a solid foundation.
Bias: The outlook remains bearish as long as prices stay below the 1.3400 EMA cluster. With the pound lacking domestic driving factors this week, the approach should be to sell off gains towards 1.3250 while eyeing a retest of 1.3150. If Thursday’s PCE figure breaches that support, a move towards 1.3100 could be on the cards. Only a surprising easing in inflation or a close above 1.3300 would prompt a reevaluation.
