Surprising PMI data for the UK

The Purchasing Managers Index (PMI) is a leading indicator of economic health where an expansion of the industry is indicated by a data release above 50, while a release below 50 indicates a contraction. On Tuesday, the Flash Manufacturing PMI was released at 49.2 (Forecast: 47.5) and the Flash Services PMI was released at 53.3 (Forecast: 49.2) for the UK economy.

A detailed reading of the PMI report highlighted “steep increases in average prices charged” despite “input cost inflation easing for the third month running”. Combining this with the better-than-expected PMI data, the UK Pound saw immediate strength, as the GBPUSD broke strongly higher from the consolidation along the 1.20 round number level to reach the 1.2150 price area.

However, although the GBPUSD rose quickly to the 1.2150 price level, the move higher was resisted by the 61.8% Fibonacci retracement level. The GBPUSD has since been trading between the price range of 1.2150 and 1.2050 in the short term and has formed a bearish pennant chart pattern.

With the US Core PCE Price Index due on Friday and is forecasted to be released at 0.4% (Previous: 0.3%), signaling slightly faster inflation growth, the DXY could continue to strengthen and to retest the recent highs. This could result in furthe moves to the downside for the GBPUSD, breaking through the upward trendline and bearish pennant, to trade toward the previous swing low and key support level of 1.1917.