Could GBP/USD rebound after BoE and NFP double whammy?
Fawad Razaqzada August 7, 2017 7:21 AM
The GBP/USD suffered a double whammy on the last two days of last week, resulting in a 245-pip drop from the week’s high to the low. First it was the Bank of England on Thursday, which came across as less hawkish than expected as only two members voted for a rate rise, followed by a surprisingly strong US jobs report on Friday. As the pound sold off and dollar enjoyed a long overdue oversold bounce, the GBP/USD crashed back towards the psychologically-important 1.30 handle again. At the start of this week, the cable has staged what so far is a mini recovery. Whether or not it will bounce back will depend at least partially on the outcome of this week’s key economic data from both sides of the pond. Unfortunately, traders will have to wait until the end of the week again before the data is published, so we could be facing a choppy, directionless, first half of the week as far as the cable is concerned.
UK’s latest official industrial data is due on Thursday. If manufacturing production were to fall again after its surprise 0.2% drop previously, then this may put more downward pressure on the pound given the current downbeat sentiment. In the US, the Producer Price Index (Thursday) and Consumer Price Index (Friday) measures of inflation will be key as far the Fed and dollar are concerned. If inflation were to fall then the greenback could potentially lose its NFP-inspired gains. On the other hand, if inflation turns out to be hotter-than-expected then the dollar could extend its rebound, possibly sending the cable back below 1.30 handle.
For now, though, one has to treat Friday’s better-than-expected jobs report as an outlier given the overall weakness in US data of late. If the dollar were to make a more meaningful comeback, we will need to see more evidence that the economy is on a sustainable path of growth and further acceleration in inflation. Consequently, I would not be surprised if the GBP/USD were to climb higher from its current levels until at least Thursday.
The area around 1.3000-1.3050 was resistance throughout the months of May and June. In July, the cable cleared this hurdle. Now, price is re-testing this area after that breakout. If the GBP/USD holds above here then this would bode well for the longer term trend. However, if the GBP/USD drifts below 1.30, then the short-term bias would turn bearish until we reclaim this level or there is a bullish formation at some lower support level. Last month’s low was at 1.2810/12 area. So, any sustainable move below this level would be a real blow to bullish position traders. In terms of resistance, 1.3115 and 1.3190 are now among the key short-term hurdles to watch going forward. These levels were previously support. But if we eventually clear these levels and move above last month’s close at around 1.3200 area, then we may see some range expansion towards the previous resistance at 1.3450 or even higher.
Source: eSignal and FOREX.com
More From Fawad Razaqzada
- US dollar down on government shutdown, but could it rebound anyway? January 22, 2018 8:06 AM
- EUR/USD rally hits a roadblock ahead of ECB January 19, 2018 1:03 PM
- See More
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.