GBP to USD Forecasts: Bulls to Target $1.25 on the UK Services PMI

It is a relatively busy day ahead for the GBP/USD. Early in the session, prelim January private sector PMI numbers will be in the spotlight.

The latest round of UK economic indicators has signaled the need for more action from the Bank of England. Today’s stats could cement another 50-basis point interest rate hike in February.

While the headline numbers will influence, the sub-components will also need consideration. Inflation, employment, and new orders will need to draw plenty of interest. In December, UK manufacturers reported falling demand from the EU due to Brexit-related issues. A similar trend in January would be of concern as the UK government continues in dialogue with the EU.

Economists forecast the manufacturing PMI to rise from 45.3 to 45.4 and the all-important services PMI to fall from 49.9 to 49.6. Expect a larger-than-expected fall in the services PMI to have the most influence on the GBP/USD.

However, no Monetary Policy Committee Members are speaking today, leaving investors to monitor chatter with the media.

GBP/USD Price Action

At the time of writing, the Pound was down 0.05% to $1.23675. A mixed start to the day saw the GBP/USD rise to an early high of $1.23784 before falling to a low of $1.23668.

Technical Indicators

The Pound needs to move through the $1.2382 pivot to target the First Major Resistance Level (R1) at $1.2440 and the Monday high of $1.24478. A return to $1.24 would signal an extended breakout session. However, the Pound would better-than-expected services PMI numbers to support a breakout session.

In the event of an extended rally, the GBP to USD would likely test the Second Major Resistance Level (R2) at $1.2506. The Third Major Resistance Level sits at $1.2630.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.2315 in play. However, barring a data-fueled sell-off, the GBP/USD should avoid sub-$1.2250. The second Major Support Level (S2) at $1.2257 should limit the downside.

The Third Major Support Level (S3) sits at $1.2133.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The GBP/USD sits above the 50-day EMA, currently at $1.22938. The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.2315) and the 50-day EMA ($1.22938) would support a breakout from R1 ($1.2440) to target R2 ($1.2506). However, a fall through S1 ($1.2315) would bring the 50-day EMA ($1.22938) into view. A fall through the 50-day EMA would send a bearish signal.

The US Session

It is a busier day ahead on the US economic calendar. Prelim January private sector PMI numbers will be in the spotlight. Following the disappointing ISM survey-based numbers for December, a deeper contraction in the services sector would give further evidence of a hard landing.

There are also FOMC members speaking today to influence, with the Fed having entered the blackout period on Saturday.