GBPUSD Uptrend Correction (May 05, 2016)

Price found resistance near the 1.4750 minor psychological level and seems to be in the middle of a correction.

Applying the Fibonacci tool on the latest swing low and high shows that the trend line is near the 61.8% Fibonacci retracement level, which might be the line in the sand for any correction. A smaller pullback could last until the 50% Fib level, which coincides with a former resistance level and is close to the 1.4400 major psychological support. 

The 100 SMA, which is also near the 50% Fib, is above the longer-term 200 SMA so the uptrend is likely to carry on. Meanwhile, stochastic is indicating oversold conditions so selling pressure might be exhausted and buyers could take over. RSI is starting to turn higher from the oversold level to indicate a return in buying pressure. 

Event risks for this setup include the UK services PMI release today. A drop from 53.7 to 53.6 is eyed, and this would indicate a slight slowdown in industry expansion. A higher than expected reading could allow the pair's rally to resume as this sector accounts for nearly two-thirds of overall economic growth in the UK. Earlier in the week, the UK manufacturing PMI and construction PMI both showed declines and fell short of expectations.  

As for the US dollar, the ADP non-farm employment change fell short of expectations as well, with the actual reading showing a mere 156K gain in hiring versus the estimated 205K increase. On the other hand, the ISM non-manufacturing PMI beat expectations by rising from 54.5 to 55.7, outpacing the consensus at 54.7. 

The next main catalyst for the US dollar is the non-farm payrolls report due on Friday. Analysts are expecting to see a 203K gain, lower than the previous 215K increase, which might still be enough to keep the unemployment rate steady at 5.0%. 

By Kate Curtis from Trader's Way