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GBP/USD forex signal - UK Construction PMI - 04 Sep 2017

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GBP/USD forex signal 04 Sep 2017
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Construction PMI expected to rise

The UK's activity in the construction sector will be determined by the IHS Markit's construction PMI which is due for release today. According to the economists polled, the construction sector is expected to rise to 52.1 in August. This is slightly higher after July's PMI data fell to 51.9. Last Friday, the UK's manufacturing PMI data came out positive, beating estimates of 55.3 to rise to 56.3. This potentially raises the expectations that the construction activity might have also increased.

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GBPUSD could see some upside in the near term

The British pound has given up the gains since July's highs of trading above the 1.3200 handle. After steadily declining to 1.2800, the currency pair is attempting another leg to the upside. However, this brief correction is unlikely to materialize with a bullish trend. Therefore, the current gains from 1.2800 support could be seen as a modest correction in GBPUSD.

In the near term we can expect GBPUSD to potentially rise to retest 1.3000 handle. This level will be key as GBPUSD will be looking to test the resistance level here. A reversal off this level will confirm further downside in prices.

The overall chart pattern in GBPUSD also showed that there is a head and shoulders pattern that is forming. This means that a reversal at 1.3000 could mark the right shoulder followed by a decline to 1.2878 - 1.2800 support level. A break down below this support will push GBPUSD towards 1.2400.

How we trade?

To capture this potentially strong move, we look at the daily chart. From this time frame, the GBPUSD head and shoulders pattern is quite evident. Price action is likely to attempt to push higher in the near term, thus making 1.3000 which is also a psychological level quite a strong number to trade from.

Therefore, the trade idea is to go short on GBPUSD at 1.2975 which is a few pips off the 1.3000 handle. The target to the downside will be the 1.2800 support. For stops, we look to placing a tactical stop loss level at 1.3065.

Position: Short
Entry level: 1.2975
Take profit: 1.2800
Stop loss: 1.3065

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