Despite of mixed economic data from the US, the US Dollar (USD) managed to rise for a second day against most of its key counterparts, including the Euro (EUR) and the British Pound (GBP). The negative effect of weaker-than-expected private sector employment data and fall in US labor efficiency got negated by lower US trade deficit and strong ISM non-manufacturing PMI number. The ADP employment report showed US private sector employment increased by 156,000 jobs in April, which was well short of consensus estimates of 205,000 jobs. The US labor efficiency fell by a 1% annual rate in the first quarter of 2016, marking a fourth quarter of decline in the past six quarters. Meanwhile, the US trade deficit shrank in March to $40.4 Billion, lowest since Feb. 2015, and the ISM non-manufacturing PMI rose to its highest level since Nov. 2015 by printing 55.7 for the month of April.
The ADP report is considered as a precursor for the official jobs report, scheduled for release on Friday. Hence, should Friday's report also disappoint, USD could resume its near-term weakening trend. As of now, it seems that the greenback might have already formed a near-term bottom.
The GBP/USD pair's decline was led by weak construction PMI number released on Wednesday. UK construction PMI fell to 52.0 in April, down from a March's reading of 54.2, indicating deteriorating activity in UK's construction sector. Back-to-back weak PMI prints have dragged the pair lower by over 300-pips from a multi-month high level touched earlier during the week. The pair, however, has recovered from Wednesday's low and is currently trading above 1.4500 handle. The EUR/USD pair too, extended its reversal from over 8-month high level of 1.1616 tested on Monday, to currently trade below 1.1500 level.
The next key event risk for the GBP/USD pair would be UK services PMI figure due later on Thursday. This along with the weekly US jobless claims and building permits data for March would be eyed for some short-term tradable moves. However, the major focus would still remain on Friday's monthly US jobs data, which is likely to have a lasting effect on the currency markets.
Technical Outlook
GBP/USD
The pair managed to rebound from 1.4480-70 support region (38.2% Fibonacci retracement level support of 1.4009-1.4770 up-swing) and hence, a follow through buying interest above 1.4530-35 horizontal resistance seems to assist the pair to move back towards 1.4590-1.4600 support turned resistance marked by 23.6% Fibonacci retracement level.
On the flip side, weakness back below 1.4500 handle and a subsequent break below 1.4480-70 support now seems to provide the required momentum to drag the pair towards testing its next major support near 1.4385-80 confluence region, comprising of 20-day SMA and 50% Fibonacci retracement level.
EUR/USD
The pair seems to attempt a move back above 1.1500 handle, which if cleared seems to boost the pair towards 1.1550-55 resistance area. Only a decisive move back above 1.1550 resistance would negate possibilities of any further downside and could assist the pair back towards 1.1600 round figure mark.
Alternatively, weakness below 1.1455-50 immediate support is likely to get extended towards next strong support near 1.1350 confluence region, comprising of 20-day SMA and 23.6% Fibonacci retracement level of 1.0522-1.01616 sharp up-move. Hence, a decisive break through 1.1350 support seems to open room for further corrective move in the near-term.
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