Cable Remains Flat Ahead of Employment Data

Key Points:

• Strong support at 1.2849 likely to cap a further slide lower.

• Pair remains technically neutral.

• Keep a close watch on the U.S. CPI figures, due out during Friday’s session.

The Cable experienced a relatively torrid week as the pair was initially beset by a negative UK Manufacturing PMI result of 54.3. In addition, the Construction PMI also proved disappointing, coming in fractionally lower at 54.8. Subsequently, the pair declined through most of the week to close around the 1.2885 mark. However, it’s uncertain if the pair will retain its sideways direction in the week ahead. Subsequently, let’s review the salient events from last week with a view to forming a directional bias for the coming days.

Last week proved highly negative for the Cable as the pair dealt with the release of some negative UK economic data points. In particular, the UK Manufacturing PMI result quickly turned negative, coming in well below estimates at 54.3, and commencing a slide in the GBPUSD. Additionally, the Construction PMI was also disappointing, slipping to 54.8, and adding to the selling pressure. Late in the week also saw a range of U.S. economic data released with the Non-Farm Payroll figures rising sharply to 222k. Subsequently, the pair saw some strong selling and closed the week out over 140 pips lower and around the 1.2885 mark.

Looking ahead, it could potentially be a relatively busy week for the Cable with the UK BRC Retail Sales and U.S. Core CPI figures due for release.  The BRC Retail Sales figures are due for release early in the week and are forecast at 0.5% which represents a significant gain from the prior result of -0.4%. Subsequently, if the estimates are correct, expect the Cable to find some support from the positive result. In addition, the U.S. Core CPI figures are set for release and the forecast has them returning a 0.2% m/m result. However, there is mounting speculation that the U.S. economy could be suffering some headwinds presently. Subsequently, the inflation figures will be closely monitored by the market for signs of slowing. Finally, the Bank of England has a range of members, and their chief economist, due to speak in the coming week and may provide some illumination on when the central bank will choose to tighten.

From the technical perspective, the pair largely remained within a consolidation phase through most of last week. In addition, the RSI Oscillator remains within neutral territory and is presently trending sideways. Subsequently, our initial bias is neutral for the week ahead with the caveat to expect a gentle slide with strong support at 1.2849 capping any further downside moves. Support is currently in place for the pair at 1.2849, 1.2767, and 1.2706. Resistance exists on the upside at 1.3045, 1.3272, and 1.3441.

Ultimately, the coming few sessions are likely to focus heavily upon the U.S. Core CPI and UK employment change figures. However, given the recent lack of volatility, it might just take a significant event to alter the pair’s present sideways direction.  Subsequently, it is likely to be Friday’s session, with the release of the US CPI data that sets the tone of the short term fundamental trend. So monitor the outcome closely because a miss of the estimate (0.2% m/m) could cause some significant upside moves for the pair.