- GBP/USD is set to rock in response to the all-important US Non-Farm Payrolls report.
- Downbeat job figures may boost GBP/USD, yet Britain’s issues may push it down.
- Friday’s four-hour chart is showing that momentum remains to the downside.
Cable is at the crossroads, finding its feet and looking for a direction – and that next move could be a zig-zag, first up and then down. That may present a selling opportunity.
Disappointing NFP?
The surge may emerge from the all-important US Non-Farm Payrolls figures for August. The economic calendar is pointing to an increase of 1.4 million jobs, but there are reasons to expect a lower figure.
First, the employment components of ISM’s purchasing managers’ indexes both pointed to contraction – both in services and in manufacturing. The weakness in hiring comes despite the broad expansion.
Second, ADP’s private-sector labor figures missed estimates with an increase of only 428,000 positions last month. Skeptics are rightly pointing to the fact that America’s largest payroll firm has been off the mark in recent months. However, contrary to previous months, ADP did not make a meaningful upward revision to July’s figures – indicating it is more convinced of the slowdown in hiring.
Third, a seasonal quirk that pushed July’s statistics higher is not in play in August. Economists probably took that into account, but perhaps not fully.
More
- Nonfarm Payrolls Preview: Fed’s policy shift to introduce vital noise
- Non-Farm Payrolls August Preview: US dollar is waiting for good news
Overall, an increase of fewer than one million jobs cannot be ruled out and that could weigh on the dollar.
Pound problems
After the NFP dust settles, there is room to refocus on Britain’s issues. Leeds, a large northeastern city, is facing lockdown amid an increase in coronavirus cases. The UK’s virus situation is much improved in comparison to the worst of the crisis, but it is not out of the woods.
Brexit talks remain deadlocked and there is also little progress in preparations for the day after the transition period ends. Concerns about the state of customs may also weigh on sterling.
Apart from Brexit, another time bomb looms – the expiry of the furlough scheme in October. It seems that the government would like to extend it, yet may have to raise taxes. Investors and the public are unhappy with the miserable choices.
The Treasury paid most of the salaries of workers that were unable to work due to the crisis, keeping them attached to employers and holding a lid on the unemployment rate – only 3.9% as of June.
Rishi Sunak, Chancellor of the Exchequer, briefed fellow Conservative Party members of “difficult times.” Officials at the Bank of England echoed that message by warning of a long recovery path.
Overall, US weakness may divert attention from Britain’s issues – yet probably only temporarily.
GBP/USD Technical Analysis
Despite the stabilization, momentum on the four-hour chart remains to the downside. Cable is struggling to recapture the 50 Simple Moving Average while still holding above the 100 and 200 SMAs.
Support awaits at 1.3240, Thursday’s low, followed by 1.3175 and 1.3120, both stepping stones on the way up. The next lines to watch are 1.3050 and 1.30.
Resistance is at 1.33, a round level that worked in both directions. It is followed by 1.3360, which capped GBP/USD both on the way and when descending. The next levels to watch are 1.3420, 1.3480, and 1.3510.
More What is behind the greenback comeback? Not only the NFP buildup
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