Is the retrace higher over for GBP/USD?

GBP/USD at A Decisive Level, After UK and US Services Improve

Posted Friday, October 22, 2021 by
Skerdian Meta • 3 min read

The services sector recovered during summer in Europe and the UK after the winter/spring lockdowns and other restrictions. But, they started to cool off in September with the idea that restrictions would return once the summer is over. But, judging by the comments that the European politicians have made in recent weeks, it seems like there won’t be any more lockdowns anytime soon.

Protests are strong in most European cities too, so this means that services will operate normally. Today. we saw a jump in all service report including the UK and US report which you can find below GBP/USD is also at a decisive level, trading at moving averages on the daily chart after a retrace higher. This looks like a good opportunity to sell GBP/USD.

Latest data released by Markit/CIPS – 22 October 2021

  • October flash services PMI 58.0 points vs 54.5 expected
  • September srvices were 55.4 points
  • Manufacturing PMI 57.7 points vs 55.8 expected
  • Prior manufacturing was 57.1 points
  • Composite PMI 56.8 points
  • Prior composite PMI was 54.9 points

UK business activity beat on expectations in October, regaining some momentum as overall growth is the strongest in three months. Services led the recovery but there was a notable slowdown in manufacturing output (weakest in 8 months) amid supply bottlenecks.

The manufacturing reading remains flattered by the elevated supplier delivery times though, in which the index is still extremely subdued (but oppositely reflected in the overall PMI index) due to supply and capacity constraints in general.

The worsening global supply chain crisis also contributed to the fastest rate of input price inflation in the UK since the index began in 1998. That just adds more fuel to the fire on rate expectations ahead of the BOE policy meeting next month. Markit notes that:

“The UK economy picked up speed again in October, but the expansion is looking increasingly dependent on the service sector, which in turn looks prone to a slowdown amid the recent rise in COVID-19 cases. Growth is also being accompanied by an unprecedented rise in inflationary pressures, which will inevitably feed through into higher consumer prices in coming months.

“The news comes at a time when the Bank of England is already leaning towards hiking interest rates to safeguard against inflationary expectations becoming entrenched. The record readings of the PMI survey’s price gauges will inevitably pour further fuel on these inflation worries and add to the case for higher interest rates.

“However, the economic growth signals from the PMI remain less convincing from a policy standpoint. The service sector is clearly in something of a sweet spot as the UK has seen more people’s lives and livelihoods return closer to normal. Some of the growth momentum will therefore fade as this rebound passes. Moreover, rising COVID-19 case numbers pose a downside risk to growth in the coming months, potentially deterring some services-oriented activity among consumers in particular and potentially leading to the renewed en

October services PMI data

October services PMI data
  • October services flash PMI 58.2 points vs 55.1 expected
  • Three-month high for services
  • September services were 54.9 points
  • Manufacturing 59.2 points vs 60.3 expected — seven month low
  • Prior manufacturing was 60.7 points
  • Composite 57.3 points vs 54.7 expected
  • Prior composite 55.0 points
  • Record rise in backlogs of work in the composite index
  • Record high in outstanding business in the composite index
  • Employment rose at highest since June
  • Average input prices rose at a survey record pace
  • Selling price inflation for goods and services also hit a new series peak
  • New orders slowed with services new orders at an eight-month low
These are good numbers. The whole report reads like an inflationary boom that should make the Fed worried that it’s behind the curve.
From IHS Markit chief economist Chris Williamson:
October saw resurgent service sector activity as COVID-19 case numbers continued to fall, marking a encouragingly strong start to the fourth quarter for the economy. Hiring has likewise picked up as firms have been encouraged to expand capacity to meet rising demand. “However, while manufacturers also continue to report strong demand, factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages. Prices paid by factories for raw materials rose at yet another new record pace as a result, in turn feeding through to both higher prices at the factory gate and spilling over into higher service sector prices. Higher wages are also having to be offered to attract or retain staff, adding to the inflationary pressures. “Thus, while the economy looks set for stronger growth in the fourth quarter, the upward rise in inflationary pressures also shows no signs of abating.”
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