The Pound Sterling (GBP) has made a small gain, continuing its recovery after a recent drop. With not much domestic news expected, all eyes are on Thursday’s preliminary PMI reports. Manufacturing is likely to stay below 50, indicating a slowdown, while services are predicted to show slight growth above 50. The currency is benefiting from improving spreads and short-term rates, which suggest a 25 basis point rate cut by early August and possibly more easing by the end of the year. A sustained upward trend is indicated by the rise above the 50-day moving average at 1.3524. Support is strong in the upper-1.33s, confirming the overall bullish trend, with the Relative Strength Index (RSI) staying positive above 50.

Trading Range and Risks

A trading range is expected soon, with support at around 1.3500 and resistance at 1.3580. Given the potential risks and uncertainties, it’s essential to do thorough research before making investment decisions. Individuals are responsible for their financial outcomes, and there are no guarantees that the data is error-free or current. This content is for informational purposes and does not constitute investment advice; the authors are not liable for any inaccuracies. Considering the current trend, traders should look for strategies that can benefit from slight upward movements within this range. A bull call spread might be a practical approach, aiming to seize potential gains up to the 1.3580 resistance. This strategy also limits initial capital risk ahead of key data releases. The preliminary PMI reports are important to watch, but recent data already suggest a stronger outlook than expected. The S&P Global/CIPS UK Manufacturing PMI for May surprisingly increased to 51.2, the highest in 22 months, contradicting the idea of ongoing contraction. A similar positive services report, last recorded at 52.9, could strengthen the pound further.

Market Expectations and Strategies

Market expectations for monetary policy support this cautious optimism. Traders are anticipating a rate cut by August; however, April’s inflation data came in at 2.3%, slightly above the 2.1% prediction, which might delay action by the Bank of England. This hold on easing is likely to keep short-term rates favorable for the pound. For those who believe the currency will remain stable, selling put options with a strike price near the 1.3500 support level could be a profitable strategy. Historically, after recovery periods, the pound tends to consolidate, making income-generating strategies appealing. This approach assumes the specified support level will hold in the coming weeks. We recommend keeping an eye on implied volatility levels leading up to Thursday. If option prices seem relatively low, buying a straddle could be a smart way to trade the PMI release. This would enable a trader to profit from a significant price change in either direction, should the data significantly surprise the market. Create your live VT Markets account and start trading now.

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