GBP/USD falls to a new 2022 low ahead of PMI data
GBP/USD is falling, extending yesterday’s selloff amid rising concerns over the outlook for the UK economy.
Fears of surging inflation fueling the cost-of-living crisis are dragging the pound lower. Inflation bets hit a record high with one-year inflation swaps – a measure of how fast trades see inflation rising, hit almost 13%, breaking the record set last week.
Citigroup said they now see inflation rising to 18% by the start of next year, well above the BoE’s 13% forecast for peak inflation. But this wouldn’t be the first time the BoE underestimated how quickly prices could rise.
With the energy crisis showing no signs of reprieve, the picture will likely deteriorate further into winter.
Attention now turns to UK PMI data which is expected to show that business activity grew slower in August but holds above the key 50 level separating expansion from contraction. The composite PMI is forecast to be 51.1, down from 52.1 in July.
A stronger than forecast PMI reading could temporarily help stem the GBP selloff. However, it is only a matter of time before the PMIs fall below 50.
Where next for GBP/USD?
The GBP/USD chart is bearish. The price trades below the 20 & 50 sma and the multi-month falling trendline. The RSI is also supportive of further losses while it remains out of oversold territory. Sellers have taken out 1.1760, the previous 2022 low, opening the door to 1.17 round number and a move towards 1.15, the March 2020 low.
On the flip side, resistance can be seen at 1.1950, the June low, with a move over here negating the near-term downtrend. Buyers need to retake 1.2280 to create a higher high.
Nasdaq falls to a 3-week low, PMI data due
The Nasdaq plunged 2.6% yesterday to a 3-week low, as 10-year treasury yields rose above 3% and the USD rallied higher. The move by the Nasdaq wiped out gains following the cooler-than-forecast CPI print, which had fueled bets of a less aggressive Fed.
Instead, the market has come to the realisation that the Fed is unlikely to adopt a dovish pivot at this week’s Jackson Hole Symposium.
Attention now turns to US PMI data which is expected to show that the service sector contracted at a slower pace in August, at 49, up from 47.3, an unexpected fall in July. However, given the strong ISM services PMI figure, we could see an upside surprise.
Where next for the Nasdaq?
Nasdaq ran into resistance at 13700 and has rebounded lower, falling below the 20 sma before finding support at 12800. The bearish crossover on the MACD suggests that more losses could come.
Sellers need to take out 12800 to extend the bearish trend towards 12380 the 50 sma.
On the flip side, buyers could look for a move over 13200, the 50 sma, to open the door to 13500, the May high, ahead of 13725, the August high. A move above here creates a higher high.