The British Pound (GBPUSD), has mostly ignored today’s softer than expected UK Services PMI report. The latest PMI figures show that the most significant component of the UK economy, the service sector, was contracting, as the index dropped to 49.5 from 50.6 in the prior month. A reading below the 50-threshold suggests that the industry is contracting.
Directly on the release of the news, GBPUSD slid from 1.2303 to 1.2286. However, 25 minutes after the release of the report the GBPUSD was trading at 1.2308. The move higher in the GBPUSD stems from general dollar weakness, and the USD has been soft the whole of this morning against all of its key peers, with the exception the Swiss Franc. The move lower in the dollar can be attributed to the dollar being overbought, and the feeble ISM report triggering profit-taking. For more on the dollar read: USD: Dollar Index at Overbought Levels Ahead of ADP Report.
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As for the GBPUSD the trend remains firmly downwards below the September 24 high of 1.2507, but the price has struggled to materially trade lower since Friday. The lack of down move might result in a short-squeeze, which is when all sellers head for the exit at the same time causing the price to soar without experiencing any corrections. The risk of a short-squeeze will probably make it more likely that sophisticated traders will hold off to short the GBPUSD pair until it reached the 1.2386 to 1.2507 interval.
The UK Composite PMI is suggesting that the UK economy is contracting by 0.1% in the third quarter, which follows a 0.2% contraction in the second quarter. If the official figure indeed shows a decrease, then the UK economy would have experienced a technical recession. The reason for the UK economy being soft, is the world economy cooling, and UK private sector spending and investing low on Brexit uncertainties.