GBP/USD: Mildly bid above 1.3100 ahead of the key PMIs

GBP/USD gradually recovers Thursday’s losses as it takes the bids to 1.3125 while heading into the London open on Friday. The pair might have benefited from the trade positive headlines but market players are waiting for the preliminary readings of January month PMIs for fresh impulse.

Following the Queen’s Royal assent to the UK PM Boris Johnson’s Withdrawal Agreement Bill (WAB), Britain is seeking trade deals with the US and Japan before the Brexit. The UK Chancellor Sajid Javid tried to placate the industries after his early-week comments triggered fears of hard Brexit. Even so, fears of the US tariffs can’t be mitigated as Tories allowed China’s Huawei to take part in 5G despite the Trump administration’s repeated notices to not do so. US President Donald Trump earlier threatened to levy tariffs on the UK if it fines the American companies like Facebook and Google.

Elsewhere, the European Union (EU) leaders keep the head high ahead of the EU-UK trade talks. The same will continue weighing on the risk tone. It’s worth mentioning that China’s outbreak of coronavirus recently offered the major blow to the global risk sentiment.

Looking forward, preliminary readings of January month PMIs from the UK and the US will be the key to watch. While the recent improvement in the UK’s earnings and CBI data have cut the odds of the BOE’s rate cuts, traders will keep eyes on the PMIs for further clarification.

Analysts at TD Securities anticipate the rate cut odds to be cut even if the data drops as they said, “While some analysts are looking at today's PMIs as the make-or-break factor for the Bank of England decision next week, we believe instead that the hard data has been disappointing enough to justify a rate cut, no matter what comes out of today's PMI report. We had initially expected a 2pt gain to the services PMI to 52.0, but the extreme weakness in the retail sector into the end of the year suggests that firms may not be all that optimistic. We've downgraded our forecast and now fall in line with consensus at 51.0. For manufacturing, we look for a smaller gain, as there seem to be more fundamental issues there, and we look for an increase to 48.0 (market forecast 48.8).”

Technical Analysis

A daily closing beyond the 45-pip range between 1.3145 and 1.3100, including 50% Fibonacci retracement of its November-December 2019 upside and 21-day SMA respectively, becomes necessary for the pair to register increased volatility.