GBP/USD regains its traction and trades above 1.2650 in the second half of the day on Friday. The data from the US showed that the S&P Global Services PMI dropped into the contraction territory below 50 in February, causing the US Dollar to lose strength and helping the pair edge higher.
The Relative Strength Index (RSI) indicator on the 4-hour chart retreats toward 60 after rising slightly above 70 on Thursday, suggesting that the bullish bias remains intact following a technical correction.
GBP/USD faces a pivot level at 1.2650 (Fibonacci 78.6% retracement of the latest uptrend). If the pair manages to stabilize above this level and confirms it as support, 1.2700-1.2710 (round level, static level) could be seen as next resistance before 1.2750 (static level).
On the downside, 1.2600 (round level, static level) aligns as first support ahead of 1.2530 (Fibonacci 61.8% retracement) and 1.2500 (round level, static level).
Fundamental Overview
On Thursday, the broad-based selling pressure surrounding the US Dollar (USD) helped GBP/USD push higher. Disappointing Jobless Claims data and falling US Treasury bond yields weighed on the USD.
The UK's Office for National Statistics (ONS) reported early Friday that Retail Sales rose by 1.7% on a monthly basis in January. This reading followed the 0.6% decline recorded in December and came in better than the market expectation for an increase of 0.3%.
Other data from the UK showed that the S&P Global/CIPS Manufacturing PMI dropped to 46.4 in early February, suggesting that the business activity in the manufacturing sector contracted at an accelerating pace. On a positive note, the Services PMI improved to 51.1 from 50.9 in January. Nevertheless, these mixed data releases seem to be making it difficult for Pound Sterling to preserve its strength.
S&P Global will release the Manufacturing and Services PMI reports for the US later in the day. If either of the headline PMIs unexpectedly come in below 50 and point to a contraction, the initial market reaction could force the USD to come under renewed selling pressure and open the door for a leg higher in GBP/USD.
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