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GBP/USD extends recovery ahead of NFP on May’s last day as PM

Today’s focus will clearly be on the monthly jobs report from the US and to a lesser degree that of Canada, both due for publication at 13:30 BST. The North American dollars should therefore move sharply, especially if the actual numbers were to deviate from expectations by meaningful margins.

Analysts expect NFP to trounce poor ADP estimate

As far as the US non-farm payrolls is concerned, well they are seen rising by 177,000 in May compared to 263,000 the month before. Analysts expect the unemployment rate to have remained unchanged at 3.6% year-over-year in May while average hourly earnings are expected to have risen 0.3% month-over-month.

As per our NFP preview article, we are leaning towards discounting the anomalous ADP report and expecting a more solid NFP report given the generally strong data among the other three reliable employment indicators that have been released this week. However, if the ADP is correct and we see a very poor official reading of the jobs market then that could see the dollar sink.

Theresa May will remain as caretaker PM until next leader is chosen

Today also marks Theresa May’s last day as the leader of the Conservatives and Prime Minister of the UK. But while she will officially step down, May will remain as PM until her successor is chosen. There are currently 11 Tory MPs vying for the top job and the winner is expected to be announced in the week of 22 July, with hard-line Brexiteer Boris Johnson remaining the bookies favourite.

Conservatives losing support

The next PM will have until Halloween to deliver a new Brexit plan, or the UK could crash out of the EU without a deal. Whoever replaces May will face a very tough task. There is no strong consensus within the Tory party or indeed the parliament with regards to which direction Brexit should be headed. But one thing is certainly clear: the Tories have lost the trust of many voters. Indeed, they came third in the Peterborough by-election, behind winners Labour and Nigel Farage’s newly-formed Brexit Party. Peterborough has traditionally been a Tory-Labour marginal seat, and so the defeat is significant as people are likely to vote the same in the event of a general election.

Pound finds relief thanks to short covering

The pound has actually managed to hold it is own relatively well so far this week after being hammered in the previous weeks. At the time of writing, it was up against the dollar, euro and yen on the session. With no fresh Brexit developments expected until the next Tory leader is elected, there is plenty of time for the pound to move around. The pound’s short covering bounce could potentially turn into a full-on rally, especially for the GBP/USD pair due to the dollar selling off recently. So in the event the US jobs reports misses expectations badly today, look out for a continuation of the recovery in the cable. However, a strong jobs report could see the dollar resume its rally and everything against the buck could drop as a result.

Coming up next week

The GBP/USD will remain in focus next week as we will have top tier data from both sides of the pond, starting with UK GDP and manufacturing production on Monday. UK earnings and employment numbers will be published on Tuesday followed a day later by US consumer inflation data on Wednesday and retail sales on Friday.

GBP/USD needs to break last week’s high to tip the balance in bulls’ favour

Technically, a potential break above last week’s high at 1.2745ish should be a short term bullish development, provided it is not a brief false break. If it does manage to break and hold above 1.2745 today then we could potentially see a squeeze towards the next resistance at 1.2865, the low from April. However, if the cable does not break above last week’s high but instead take out support around 1.2670 area first then this could pave the way for a potential drop below last week’s low at just below 1.2560 and potentially this year’s low at 1.2420 next.


Source: Trading View and FOREX.com 

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