The preliminary estimates of the UK business activity came out better than expected. It was especially true for the UK manufacturing PMI which rose to 58.2 instead of falling to 57.1 from 57.8.
Even the UK services PMI, which declined to 58.6 from 59.1, was still good news for investors as it should have dropped to 58.3 according to the forecast. Flash UK composite PMI was expected to go down from 57.8 to 57.3. Yet, its actual reading stood at 57.7.
Despite positive reports, the pound began to decline, although at a languid pace. This happened because investors had high expectations ahead of the data release, especially after robust economic results posted in the eurozone. Against this backdrop, the UK indicators looked weaker even though the actual readings exceeded the forecast.
Yesterday, right after the opening of the New York session, the pound managed to win back almost all of its losses. GBP missed just a few pips to reach the previous levels. The British currency was supported by the report on business activity in the US: the estimated figures turned out to be well below the forecast.
At the same time, the manufacturing PMI advanced to 59.1 from 58.4, while the expected reading was 58.8. The US services PMI slumped to 57.0 instead of rising from 58.7 to 59.0. Mainly due to this, the composite PMI fell to 56.5 from 57.6, although it was supposed to increase to 58.2.
We expect many economic statistics from the US while the economic calendar is primarily empty before the American trading session. Thursday is a day off in the US, and Friday is a short business day.
The report on durable goods orders is of the main interest to the markets. The reading is projected to rise by 0.3%, which is a relatively favorable sign. The fact is that durable good orders reflect the future dynamic of consumer activity, which is considered the main driving force for the US economy.
As for the data on initial jobless claims, it is of minor importance today. The number of initial claims for unemployment benefits is expected to decrease by 4,000 while continuing claims are only 10,000. So, these are insignificant changes that are likely to be ignored by the market.
The second estimate of GDP growth for the third quarter of 2021 is likely to come in line with the first one, which market players have already considered. Therefore, investors will most likely downplay this report as well. Investors will pay close attention only to the data on durable goods orders despite an eventful economic calendar. If the forecast comes true, the US dollar may strengthen even more against its rivals.
After a short pullback, the GBP/USD pair resumed its downtrend so that the price consolidated below the support level of 1.3400. As a result, the downward movement intensified, and the candlestick shadows broke through the low of 1.3350 that was reached on Nov. 12.
The Relative Strength Index moved below the line of 30 on H1, thus signaling an overbought status of the pound sterling. The signal has not been confirmed on the H4 time frame, which indicates that the downtrend may be prolonged.
On the daily chart, we can observe a descending trend initiated in early June with an overall distance of 880 pips.
Outlook for GBP/USD
As the price hit the local yearly low, traders reduced the volume of short positions on the pair. This led to a consequent rebound of the price with a further slowdown. To extend the current downtrend to new levels, the quote needs to hold firmly below the mark of 1.3350, at least on the H4 chart. Otherwise, we may see a pullback towards the previously tested level of 1.3400.
The comprehensive indicator analysis confirms a buy signal for the short term due to the current pullback of the price. Meanwhile, technical indicators on H4 and daily charts signal a selling opportunity.