GBP/USD slips away from 1.33 as markets recoil on trade war rhetoric

• Sterling lacks directional strength ahead of Friday’s NFP risk event.
• Limited UK data for Friday’s London window leaves plenty of room for market sentiment to set the tone.

The GBP/USD is heading lower ahead of the London market session, and the pair is testing back into 1.3260 with the US Non-Farm Payrolls on the horizon.

Market sentiment couldn’t decide what to do with itself this week, with risk assets slumping early in the week following Italy’s government spoil that looked set to send Italy heading back to the election polls, but fears resolved themselves when it appeared that Italy may avert a re-election.  

Then US President Donald Trump cooled off a risk recovery on Thursday when it was announced that the US would impose their months-old steel and aluminum tariffs on Canada, Mexico, and the EU, three of the US’ closest allies and biggest trading partners. Markets recoiled at the news as traders brace for a ramping up of the early stages of a global trade war, with all three of the affected bodies stating their intentions to retaliate with similar tariffs of their own.

With market sentiment souring, the Sterling heads into Friday with only Markit Manufacturing PMIs for May (forecast 53.5, prev. 53.9) on the docket at 08:30 GMT, Followed by the US NFP report at 12:30 GMT. The NFP is expected to come in at 188 thousand, a clip higher than the previous reading of 164 thousand, and y/y Average Hourly Earnings for May are expected to tick up slightly to 2.7%, from 2.6%.

GBP/USD levels to watch

The Sterling’s attempts to form up a bullish technical correction appear to be fizzling out quickly, and as FXStreet Chief Analyst Valeria Bednarik noted, “the short-term picture for the pair is neutral, as the pair is hovering around a flat 20 SMA, while technical indicators diverge from each other the Momentum heading higher above its mid-line, and the RSI heads lower around 45. The risk remains leaned to the downside despite the ongoing absence of directional strength, with a break now below 1.3245 required to confirm a new leg south.”

Support levels: 1.3245 1.3200 1.3160  

Resistance levels: 1.3315 1.3360 1.3400