GBP/USD Forecast: Eyes 1.52 on a weak NFP number

The GBP/USD stayed comatose around 1.4940 levels in the European session on Thursday even though the UK PMI manufacturing number printed higher than estimate. The pair spiked in the early US session on a broad based USD sell-off triggered by a sharp rise in the EUR/USD pair. EUR bears were left disappointed by the “not so dovish” stance of the ECB.

The main event for the day is the US December non-farm payrolls discussed here (GBP/USD Forecast: Non-farm Payrolls impact on GBP/USD)

Technicals – support at 1.5518

· Sterling rose above the trend line resistance (red) at 1.5060 and 1.5087 (61.8% of Apr-Jun rally). The pair also rose above the expanding channel (marked by green lines) seen on the hourly chart. Thus, an immediate support is seen at 1.5118 (channel support). · Given the overbought RSI on the hourly chart and the likelihood of the GBP selling in EUR/GBP cross (after hawkish ECB), the GBP/USD pair could dip below 1.5118 and test 1.5087 (61.8% Apr-Jun rally). · So long as the pair stays above 1.5087, the probability of a spike to 1.52 levels on a weaker-than-expected NFP (below 170) is high. · In case, the NFP blows past expectations, the currency pair could take out the falling trend line support (red) at 1.5045 and dip to 1.50 handle.

EUR/USD: Bulls could gain complete control on weak NFP and higher oil prices

The EUR/USD pair witnessed its largest single day gains since 2009. A bout of profit taking in the EUR shorts after ECB’s deposit cut rate soon translated into a full fledged rally after the ECB left the size of the QE program unchanged and merely expanded the maturity to end-March 2017.

Was ECB dovish?

Not really, but Draghi’s repeated jawboning of the EUR in last one month or so had heightened expectations to the point where the likelihood of the bank falling short of expectations was high, and that is what happened.

A cut in the deposit rate makes more bonds eligible for purchases under the ECB’s QE program. The extension of the maturity normally would have made the EUR bears happy. But again, the markets were expecting an increase in the size, which did not come through.

ECB excelled at exchange rate management again

After the surprisingly dovish tone of the September FOMC statement, there were increasing calls for a spike in the EUR/USD pair to 1.18-1.20 levels by year end. There was also a possibility that US Sep and Oct payrolls print horrible weak and further kill the Fed rate hike bets. In such a case, the EUR/USD pair could have easily rallied above 1.20 levels; making matters worst for the ECB.

However, Draghi, at the October meeting, hinted at more easing in December. His repeated jawboning pushed the EUR/USD to near yearly lows and there were increasing calls for parity by the year end. Now with the Fed on track to raise rates the ECB has little reason to worry, since profit taking on the EUR shorts alone may not result in the EUR/USD rallying way above 1.20; as it could have done if there was not jawboning of the EUR in last one month.

This also bodes well for the Fed, since the correction in the EUR/USD pair and a possibility of correction in crude could keep the USD on the back foot across the board. So the Fed does not have to worry about a fresh rally in the USD, following the liftoff at the December meeting.

As for today, the main event is NFP and its impact on the EUR/USD pair is discussed here Nonfarm Payrolls: does it really matter now?).

OPEC and EUR/USD

The other event – OPEC meeting could make the EUR bulls happy, if Saudi hints at a possible cut in the production in the near future. Eurozone’s HICP inflation is more sensitive to crude prices and thus, oil prices and the EUR/USD pair have had a strong direct correlation since July 2014.

Brent Oil and EUR/USD chart

Overall the comparison chart suggests, oil prices may form a double bottom and that would make the EUR bulls happy. Fed too would cheer a recovery in oil prices as it would keep the USD weak against the major economies (battling with deflation)