GBP/USD - Is 1.30 a distant dream?

GBP/USD snapped a three-day winning streak on May Day as it dropped to 1.2882 after UK PM Theresa May threatened to walk away from the EU without a deal. The weak US personal spending and inflation numbers failed to lift the pair as the odds of the June Fed rate hike ticked higher to 71% from 67%.

Eyes UK manufacturing PMI

The UK manufacturing PMI is expected to show the pace of expansion in the sector remained largely unchanged in March at 54.00.

The lead indicator - CBI Industrial Trends Survey released on April 24, had shown signs of slowdown ahead. Output expectations balance more than halved to +16 from +36, while the quarterly business optimism balance declined to +1 for the second quarter from +15 in the first.

The CBI data also talked about a slowdown in domestic demand outweighing export orders growth. Total manufacturing order growth eased to +4 in April from +8 in March.

Thus, the odds of the manufacturing PMI missing the estimate are high. Techies are calling for a short-term pull back in the GBP/USD pair on account of the overbought conditions. A weaker manufacturing PMI could set the correction in motion.

A positive surprise may lift the GBP/USD pair, although Brexit politics could easily overshadow the data.  The negotiation period was never going to be a smooth one. The European Union set out tough terms for the Brexit negotiations at the weekend to which PM May responded by threatening to walk away without the deal.

Increased tensions between the EU and UK could weigh over Pound. Note that Sterling traders cheer Brexit clarity (hard or soft) and a stalemate kind of a situation could only end up killing the Pound rally. A combination of weak data and heightened UK-EU tensions could make 1.30 a distant dream for GBP bulls.

GBP/USD Technical Levels

The spot traded around 1.29 in Asia. A daily close below 1.2851 (10-DMA) would signal the end of the rally from 1.2109 (Mar 14 low). On the downside, strong support is seen at 1.2775 (Dec 6 high).

On the other hand, a break above 1.2943 (previous day’s high) could yield a test of supply around 1.2966 (Friday’s high) and 1.30 (zero levels).