Sterling was moderately and only briefly knocked lower in the immediate wake of much weaker than expected March services PMI data out of the UK. Follow-through commitment lacked with markets focused no fast moving Brexit developments.
The services PMI unexpectedly fell below the growth/contraction threshold reading of 50.0, to 48.9 and sharply down from February’s 51.3 and clearly showing that the UK economy is presently on a heading toward recession. New orders fell for a third consecutive month, with respondents reporting widespread delays in client spending decisions due to the recent intensification of Brexit-related political uncertainty. The composite March PMI fell to 50.0 from 51.5, missing the median forecast for 51.1.
Cable dipped to a 1.3144 low before recouping to 1.3195, with the pound remaining about 1% above levels seen before Prime Minister May surprised onlookers late yesterday by announcing that she would work with Labour opposition leader Corbyn to find a workable compromise. Any compromise between the two would mean a further delay in Brexit and, almost certainly, the UK remaining in the EU’s custom union. May is reportedly aiming at keeping her Withdrawal Agreement, so it looks like it could be this plus the UK remaining in the customs union. The situation remains fluid, and, as things stand, the UK is set to leave the EU on April 12.
Yesterday’s jump on the surprise announcement from the PM triggered the EMA Strategy at 20:00 GMT, Target 1 was achieved within the following hour (+28 pips) and the trend remains intact, as no H1 candle has closed below the 9-period EMA.
The prevailing performance of Sterling suggests financial markets are wary but not too worried about the risk of a no-deal Brexit scenario, which seems about the right appraisal. 1.3000 for Cable remains the key support level and 1.3300 the key resistance level.
Stuart Cowell
Head Market Analyst
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