Earlier in London, sterling weakened to the dollar in spite of a report showed that the UK manufacturing sector expanded at the fastest rate in eight months in March. Markit Economics reported UK Purchasing Manager’s Index (PMI) rose to 54.4 in March, higher than the prior month reading of 54.0. The average reading printed at 53.8, its best reading since the second quarter of last year. Even with a strong print, the pound remained heavy as investors chose to focus on the UK election in May. Yesterday, early polls showed a slim two-point advantage for the Conservatives over the Labour party.
GBP/USD weakness did not continue in New York and found tentative support from a key trendline that extends back to the 1.7190 high that was made last summer. US dollar momentum was also hampered by misses on both ADP job hiring and ISM Manufacturing. The key release for the US dollar will be this Friday’s Non-farm payroll number, but we may not see heavy volume behind Friday trading as we approach the Easter holiday.
In the short-term, we may see GBP/USD stabilize around current levels. Major support will come from the 1.4750 zone. Short-term upside may target a rebound towards the 50-day SMA, which is currently trading around 1.5125. If the UK economy continues to show positive momentum, we may see further bullishness target the 1.5450 region.
The trade: Buy GBP/USD 1.4805, with a stop loss at 1.4745 and take profit at 1.4925. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading