Consolidation Trend Breakout Validated

Summary:

The GBPUSD touched above the 1.2700 level, slightly declining from its highest point since early February. The UK's manufacturing PMI for February was slightly below market expectations, but the composite PMI surged to 53.3, helping the pound hold its ground.

BUY GBPUSD

Close Time

CLOSED

1.26329

Entry Price

1.29150

1.24990

1.35206 -0.00051 -0.04%

39.5

Pips

Profit

1.24990

1.26724

Exit Price

1.26329

Entry Price

1.29150

Fundamentals

The UK's manufacturing PMI for February recorded 47.1, reaching a new high in three months. The UK's composite PMI for February recorded 53.3, hitting a nine-month high.

"UK economic growth has accelerated in February, with the early PMI survey data pointing to the largest rise in business activity for nine months," said Chris Williamson, chief business economist at S&P Global Market Intelligence. This is not a one-time improvement, as the UK economy has seen faster growth for four consecutive months following a brief dip at the end of last year. Survey data indicates that the quarterly growth rate of the UK economy for the first quarter of 2024 is between 0.2% and 0.3%, easing concerns about the recession extending into 2024 and indicating that the UK's "recession" has ended. Particularly encouraging is that, amid the improvement in economic growth, people's optimism about the outlook for the next year has surged to the highest level in two years, leading to consecutive growth in employment for the second month.

Market Outlook: While the UK economy is improving, inflation risks are increasing. Some areas of concern still persist in UK PMI data. Firstly, this improvement in the economy is largely driven by the recovery in financial services demand, which, in turn, is based on hopes for a Bank of England rate cut. In contrast, the manufacturing sector remains deeply entrenched in contraction, with activity declining amid a continued cost-of-living crisis for consumers.

Secondly, February saw the most severe supply chain delays in over a year and a half, attributed to disruptions in Red Sea shipping. This has led to increased transportation costs, resulting in the largest monthly increase in commodity selling prices in the past nine months. Service sector inflation has also risen, remaining high due to rising wage costs and the transmission effects of some commodity price increases.

Survey data indicates that consumer price inflation will be around 4% in the coming months, twice the BoE's target. As economic growth accelerates and prices rise again, the data for February implies that policymakers may be increasingly cautious when considering the appropriateness of rate cuts. This is especially significant because the seasonally adjusted core rate of interest, which has recently remained at the higher end of the G10 range, is expected by the BoE to temporarily fall back to target in the second quarter, only to rise again thereafter.

Following the mixed UK PMI data release, the GBPUSD has shown strength, currently consolidating its latest upward momentum. The currency pair is currently trading at 1.2692, up 0.46% so far.

Consolidation Trend Breakout Validated_1

Technical Analysis

As range trading continues, the intraday bias for GBPUSD remains neutral to the upside. On the positive side, a breakthrough above the 1.2687 level would indicate that the correction from 1.2825 has been completed. The short-term trend will then retest 1.2825.

On the other hand, a decisive break below 1.2499 would indicate that the overall uptrend since 1.2036 has been completed, leading to a bearish outlook in the near term.

From a broader perspective, the price action starting from the medium-term peak at 1.3142 is seen as a corrective pattern of the uptrend starting from 1.0351 (the 2022 low). The rise from 1.2036 is viewed as the second adjustment, which may still be ongoing. However, upside potential should be limited by the 1.3141 level to bring about the third wave correction of this pattern. Meanwhile, a break below the support at 1.2499 would indicate that the third wave decline has begun, with a potential test of the 38.2% Fibonacci retracement level from 1.0351 to 1.3141 at 1.2075.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.2600

Target Price: 1.2915

Stop Loss: 1.2499

Valid Until: 2024-03-07 23:55:00

Support: 1.2525, 1.2500, 1.2488, 1.2432

Resistance: 1.2615, 1.2650, 1.2670, 1.2690

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