GBP/USD: Hammer pattern points to sterling soaring to 1.3900

The GBP/USD is under pressure after the relatively strong services PMI numbers and as divisions on the vaccine passport continued. Sterling is trading at 1.3816, which is 0.75% below this week’s high of 1.3920.

GBP/USD chart

UK services PMI

The services sector plays an integral part in the UK economy. For one, it employs more than 60% of the working population. Therefore, forex traders always pay a close attention to the sector’s performance. 

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In a report today, Markit revealed that the services PMI increased from 49.5 in February to 56.3 in March. This decline was worse than the median estimate of 56.8. It then dragged the composite PMI lower to 56.4. Still, a PMI reading of 50 and above is a sign that the sector is doing well. Indeed, it is better than the EU PMI of 49.6.

According to Markit, service provider reported strong new orders leading to more hiring. They also expressed optimism of the future as the country ramps up its vaccination efforts. Indeed, the government has already vaccinated more than 30 million and it is on track to reopen the economy later this month. This performance is also better than the EU, which has vaccinated less than 15% of its population. In a note, Duncan Brock said:

“The dominant service sector moved up several gears into growth with a strong leap in overall output, topped off with a rise in job creation for the first time since the pandemic began at the beginning of 2020.”

Recent data from the UK have been relatively strong with the unemployment rate falling to 6.0% and retail sales rising. While consumer prices weakened in February, analysts expect a quick recovery as food and oil prices rise. The GBP/USD price will today react to the latest FOMC minutes that will come out during the American session. 

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GBP/USD technical forecast

GBP/USD price action

The two-hour chart shows that the GBP/USD price has retreated slightly this week. It is hovering slightly above the pivot point and the 25-day exponential moving average (EMA). It also remains slightly above the green ascending trendline. Notably, it has also formed a hammer pattern, which is usually a bullish sign. Therefore, the pair may keep rising as bulls target the next key resistance at 1.3900, which is slightly below the first resistance of the standard pivot points.

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