Bearish view
- Sell the GBP/USD pair and set a take-profit at 1.2465.
- Add a stop-loss at 1.2680.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 1.2600 and a take-profit at 1.2685.
- Add a stop-loss at 1.2500.
The GBP/USD pair tumbled sharply after the US published strong manufacturing numbers on Monday, triggering a strong US dollar comeback. The pair dropped to a low of 1.2545, its lowest level since Valentine’s Day.
US dollar index rallies
The US dollar index jumped sharply on the first trading day of the month and quarter after S&P Global released strong manufacturing data. It jumped by almost 50 basis points to $104.7, its highest level since November last year. It has risen in the past five days straight.
The dollar’s jump coincided with a similar increase in US bond yields. The yield of the 10-year rose to 4.33% while the 30-year rose to 4.34%.
In a report, the Institute of Supply Management (ISM) showed that the manufacturing PMI rose from 47.8 in February to 50.3 in March. This increase was higher than the median estimate of 48.5. It was the first time that the manufacturing sector expanded since 2022.
A separate report by S&P Global showed that the country’s manufacturing PMI rose to 51.9 in March. A PMI reading of 50 and above is a sign that a sector is growing.
Therefore, the US dollar index jumped as investors pared back their bets on the number of Federal Reserve interest rates. Economists now expect that the Fed will deliver two rate cuts this year instead of the three the Fed has guided.
The GBP/USD pair will have several important catalysts on Tuesday. In the US, several Fed officials like Loretta Mester, Michele Bowman, John Williams, and Mary Daly will deliver statements.
It will also react to the upcoming JOLTs job openings report by the Bureau of Labor Statistics (BLS). The other crucial reports will be US factory orders and UK house price index (HPI) data.
GBP/USD technical analysis
The GBP/USD pair made a bearish breakout after the strong US manufacturing PMI numbers. It retreated below the psychological point at 1.2600. The pair also dropped below the Woodie pivot point at 1.2680.
It has also crashed below the 50-day Exponential Moving Average (EMA) while the Relative Strength Index (RSI) flipped below the neutral point. Sterling is also nearing the important support level at 1.2518, its lowest swing on February 5th.
The pair will likely have a bearish breakout in the next few days as sellers target the first support of the Woodie pivot point at 1.2465.
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