U.S. Dollar Retreats; UK PMIs Much Worse Than Expected
2022.05.25 04:53
Despite an empty macroeconomic calendar, yesterday turned out to be a hectic day. The dollar went down instantly when President Biden said the US military would defend Taiwan if China ever attacked. The market reaction shows investors’ concerns about the intentions of the US as it could mark the beginning of World War III.
By the close of the trading day, the greenback felt additional pressure when Atlanta Fed President Raphael Bostic said the regulator could potentially pause interest-rate increases in September. Thus, there could be just two more rate hikes.
Based on the comments of Chairman Jerome Powell, the Federal Reserve could raise the interest rate at least by 0.75% to 1.75%. Perhaps the Fed would hike the rate by 1.00% to 2.00%. In any case, this is not what the market had anticipated. It had expected rates to end the year at 2.50% and even at 3.00%. Generally speaking, the downwardly revised forecast exerts additional pressure on the dollar.
In the United Kingdom, the manufacturing PMI dropped to 54.6 versus 55.8, and the one in the services decreased to 51.8 from 58.9. Meanwhile, the composite PMI fall to 51.8 from 58.2. Such results would be enough to drive the pound down.
UK manufacturing PMI.
However, with the start of the North American session, the quotes could return to the opening levels as pessimistic flash business activity estimates are expected in the United States. Thus, its manufacturing PMI should decrease to 58.8 versus 59.2, and the services PMI is forecast to decline to 55.0 from 55.6. The composite PMI, in its turn, is estimated to slow down to 55.5 versus 56.0.
US composite PMI.
GBP/USD broke through resistance at 1.2500, and the corrective move extended. The pound now shows the strongest growth since December, triggered by a prolonged downward cycle and the overheated short positions.
The RSI touched the overbought zone on the H4 chart, which indicates the overheating of long positions in the short term. On the daily chart, the indicator is moving in the area of line 50, which may signal the extension of the corrective move.
The MAs of the Alligator indicator are heading up on the H4 chart, signaling a correction. On the daily chart, there is a crossover of the green and red MAs, indicating a slowdown of the downtrend.
Outlook
In case of a pullback, support is seen at 1.2500. The volume of long positions will increase if the price consolidates above 1.2600. If so, bulls may push the pair to 1.2700. A pullback and consolidation below 1.2500 would be the first signal of the end of the corrective move.
As for complex indicator analysis, there is a signal to buy the instrument for short-term and intraday trading due to the corrective move. There is a sell signal in the medium term because of the general trend.
GBP/USD 4-hour price chart.
