Two trades to watch: GBP/USD, Oil

GBP/USD awaits the NFP

GBP/USD fell 0.6% in the previous session, falling to a new 2.5-year low as recession fears ramped up. UK manufacturing activity contracted at the slowest pace since the mid-pandemic.

Today the pair has steadied around 1.1550 as attention turns to the US non-farm payroll report. Expectations are for 298k jobs to be added in August, a solid reading but down slightly from July’s impressive 528k. Average wages are expected to rise to 5.3% YoY and unemployment to hold steady at 3.5%.

The jobs data this week has been mixed with jobless claims unexpectedly falling and vacancies unexpectedly rising. However, the ADP private payrolls were softer than forecast. Even so, it’s worth noting that the NFP report has beaten estimates over the past three months, showing few signs of high inflation and economic weakness seeping into the jobs market. At some point, this will start to show through.

The CME fed watch tool shows the market is pricing in a 74% likelihood of a 0.75% rate hike this month. A strong jobs report could well cement expectations for a jumbo-sized hike. This could see the USD climb higher.

A stronger or weaker jobs report may not deter the USD from its purposeful rise higher. Given the economic backdrop in Europe, the UK, and China, there are few better alternatives.

Where next for GBP/USD?

GBP/USD has fallen for the past six sessions, pulling the pair to 1.15, a level which is now acting as an immediate support. If the bulls fail to defend this level, the pair could extend its selloff to 1.1412, the May pandemic low.

It’s worth noting that the RSI is tipping into oversold territory so that we could see some consolidation. If buyers resurface, resistance can be seen at 1.1870, the July low. A rise above here exposes the 50 sma at 1.1950

Oil rises ahead of OPEC+ meeting next week

After three days of losses, oil prices are heading cautiously higher, helped by the more upbeat mood in the market and as investors look to next week’s OPEC+ meeting.

The oil cartel is expected to discuss its output plans at the meeting and will do so as China lockdown more cities as COVID spreads and fears of a global economic slowdown intensify.

While worries over China and weaker global demand have dragged oil prices over 5% lower this week, they could give OPEC+ reason to cut oil output.

Saudi Arabia has already floated the idea of an output cut to tame volatile prices and a disconnect between the futures market and the physical market. Crude oil now trades 30% off the June highs.

Where next for oil prices?

Crude oil found support on the multi-month falling trendline at 85.80 and has rebounded higher, testing resistance at 88.50, the July 14 low.

While the RSI remains below 50 and the 50 sma appears to be crossing below the 200 sma in a death cross formation, the broader outlook is still bearish. Sellers need to break below 85.00, the August low, to extend the bearish trend towards 80.00.

Meanwhile, if bears fail to defend 88.50, buyers could push the price towards 95.30 the 50 and 200 sma, negating the near-term downtrend.

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