The pound reversed course after solid manufacturing data out of the United Kingdom, after the greenback picked up support after a series of “mistakes” with the Institute of Supply Management (ISM) manufacturing PMI. The ISM manufacturing PMI reported lower, initially, than was revised twice due to, what the ISM said, application of the wrong seasonal adjustment.
The manufacturing PMI from Markit Economics came in at 57 in May opposed to the 57.3 seen in the previous month. Economists were looking for a decline to 57.1, and the weaker than expected data has given traders a reason for some profit taking. The Sterling is up 9.4 percent against the greenback over the last year.
Eimear Daly, head of market analysis at Monex Europe Ltd., said “the market is crowded with long sterling positions and any weakness in data will encourage some profit taking, but that doesn’t change our view that the U.K. has a robust economic recovery and that the Bank of England will probably be the first major central bank to raise rates.” The British economy has been strong, but it has been hit with a series of lower than forecasted data from mortgage approvals and weaker home prices.
GBPUSD has been supported momentarily via price action support at 1.6722 and the 72 EMA. After breaking through the ascending channel, the pair has carved out a secondary channel that is pointing to the downside. The pound could see resistance at the 50 EMA on a pullback before testing former support, now resistance at 1.6785.
Momentum still looks to the downside, and cable would need some positive catalysts for a sustained move north. The economic data out of the UK has been so hot over the last year, a cool off period is likely to signal continued profit taking.
A close under support would allow the pair to trend lower to the bottom of the channel at 1.6640.