It has been a day of two halves for the U.S. dollar. The greenback was initially lower and sharply so against some commodity currencies, before bouncing back in the second half of today’s session – most notably against the British pound but also versus the Swiss franc and the Japanese yen. Commodity currencies were still outperforming, however, no doubt boosted by the ongoing risk-on rally. Indeed, the market's rally continued in the wake of Friday’s strong jobs data and despite ongoing concerns that the decision by the US to impose tariffs on steel and aluminum imports from the European Union, Canada and Mexico could spark a trade war.
The British pound/U.S. dollar (GBP/USD) currency pair will remain in focus tomorrow as the May PMI data from the services sectors of both the UK and US are released. The UK PMI is expected to come in at 52.9, which would be more or less the same level as in the previous month, while the US version is seen rising almost one whole to 57.9. Ahead of these services PMI figures, we had the UK’s construction PMI released earlier today which came in just ahead of forecasts at 52.5, unchanged from April. From the US, factory orders came in weaker than expected, showing a 0.8% drop instead of 0.4% for the month of April. This hardly had any impact on the dollar, however.
From a technical point of view, the GBP/USD’s well-entrenched bearish trend remains intact. This was highlighted by its failure to even take out the first of its key resistance level, at 1.3400. As soon as it tested this level, it went on to drop 100 pips in a short space of time, cause the daily candle to turn red from green. If it closes around the current levels of 1.3300/10 or lower then it will have formed an inverted hammer candlestick pattern on its daily, which is typically a bearish sign. So, as things stand, the cable still remains on course to head lower, possibly towards the 50% or 61.8% retracement levels at 1.3182 and 1.2900 respectively. Resistance meanwhile comes in at 1.3400, as mentioned, followed by 1.3460 and 1.3500. The short-term technical bias would turn bullish only when a prior swing high is taken out, in this case at 1.3610, unless we see a distinct bullish reversal at lower levels first.