UK services PMI preview: What to expect of GBP/USD?

The UK economy will release its May services PMI later in the European session, which is forecast to tick higher from 52.3 to 52.5. 

The business activity in the country's services sector is expected to rebound in May, after having witnessed worse-than expected drop in April. Markets had predicted services PMI at 53.5 point in April.  The services sector may brush off concerns over the UK’s exit from EU’s membership and could show a positive result, given that the manufacturing sector unexpectedly returned to expansion last month.

However, a downside surprise cannot be ruled out given softer growth forecasts for the UK economy alongside uncertainty ahead of the EU referendum. On a weaker PMI print, we could see GBP/USD falling back towards 1.44 handle and from there to 100-DMA at 1.4359, while a better show would take the cable’s recovery towards 1.4500 level.

GBP/USD: Technical levels

Haresh Menghani, Analyst at FXStreet notes, “The pair already seems to have formed a bearish double-top chart pattern near 1.4700-20 area and the pattern would get confirmed once the pair decisively breaks below an important support near 1.4350 region, also coinciding with 100-day SMA. Hence, 1.4350 level becomes immediate strong support on the downside, below which the pair would confirm the bearish double-top chart pattern and could extend its downslide towards testing 1.4120 support in the near-term.”

“Meanwhile on the upside, Thursday's high near 1.4470, closely followed by 1.4500 handle remains immediate resistance to watch for. Any further up-move beyond 1.4500 handle might now be capped at 1.4530-40 region, which if conquered might negate the near-term bearish outlook for the pair.”