Today we received updated data on UK PMI’s and CPI. While CPI was a little disappointing, PMI data was strong relative to expectations. This growth recovery is supportive of GBPUSD:

However, we have to remember that GBPUSD is the product of both the US and UK legs of the currency pair. PMIs are survey data that give us an insight into the underlying real economic data, i.e., manufacturing PMI’s give us insight into how industrial production will look. Looking at the US vs. UK industrial production, we see that their rates of recovery are neck-and-neck:

Further, as we alluded to last week on this page- the criteria for positioning in GBPUSD has not been triggered for all our signals. We show our updated panel of trading indicators for GBPUSD. They include:

  • Trading Range: These ranges represent a trading bank within which a currency should trade based on multiple market factors. If we are long- prices above the upside range indicate the asset is expensive, and prices below the downside range suggest that they are cheap and vice versa if we are short.
  • Year-to-Date Returns: This is the price performance of a given currency over the course of the current calendar year, in percentage terms. We also compare the current price to the 52-week high and low for reference.
  • Price Momentum: This looks at cumulative rolling returns for a selected lookback period.  Positive momentum is good if we are long and bad if we are short. 
  • Implied Volatility Discount/Premium: This tells us what the market expects in terms of volatility relative to the history of volatility. If we are long a currency, we typically want market implied volatility to be higher than historical volatility and vice versa if we are short.

    As we can see, GBPUSD remains at the high end of the trading range, with 1-month momentum signaling more downside as well. Overall, while the UK’s outlook is improving significantly, its scope to outperform the US in the rate of change terms is diminishing.