GBPUSD forms bullish engulfing pattern ahead of UK services PMI data

The GBPUSD pair is slightly lower today as traders waited for the flash manufacturing and services PMI data from Markit. The pair is trading at 1.2458, which is slightly higher than yesterday’s low of 1.2337.

UK manufacturing and services PMI ahead

Markit, in collaboration with the Chartered Institute of Procurement and Supply (CIPS), will release the flash manufacturing and services PMI numbers later today. This data will tell investors about whether the UK economy is indeed recovering or not.

Analysts polled by Reuters expect that the manufacturing, services, and composite PMIs will be better than the previous 40.7, 29.0, and 30.0 respectively. That is because the country has been reopening and more companies have resumed their operations. Still, the three numbers will probably be below 50, which is a sign that companies are still suffering.

These numbers will come a few hours after Markit released the PMI numbers from Australia and Japan. The data in Japan showed that manufacturing and services made significant strides in June, with the services sector moving from contraction. On the other hand, data from Japan showed that manufacturing activity worsened.

GBPUSD reacts to VAT cut talks

The GBPUSD pair is also reacting to suggestions that Rishi Sunak will lower VAT in his upcoming emergency budget statement in July. Analysts expect that the chancellor will slash the rate by about two and a half to three percentage points to 17.5% or 17%. Analysts believe that cutting the tax will be good for the economy and the GBPUSD. That is because it will incentivise more people to go shopping, especially for bigger items like cars and furniture. In a statement, analysts at Deutsche Bank said:

“The mood music suggests retailers may get a good level of support from the summer Budget statement. Our sense is that rates are unlikely to come back in their previous form regardless, particularly given the collapse in rental values.”

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GBPUSD technical outlook

The GBPUSD pair is trading at 1.2458. On the daily chart, this price is along the 50% Fibonacci retracement and the 50-day exponential moving averages. Also, the price is trading along the descending trendline shown in pink. Most importantly, the pair has formed a bullish engulfing pattern, which is a sign that the pair may continue rising as bulls attempt to move above the 100-day EMA at 1.2515.

On the flip side, a move below the day’s open at 1.2340, will send a signal that bears are still in control. This will see them attempt to test the 38.2% retracement level at 1.2220.

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