GBP/USD Forecast: Bailey bails sterling out, Nonfarm Payrolls may test critical support

GBP/USD has weathered dollar strength after the BOE took a hawkish step.
US Nonfarm Payrolls are left, right and center for markets.
Friday's four-hour chart is showing bulls are in control, and where critical support awaits.

Yohay Elam FXStreet

Tip-toeing toward tightening – the Bank of England has indicated it is ready to "modestly" change its monetary policy, and that has eventually proved to be positive for the pound. A bigger test is due now.

The BOE left its policy unchanged and only one member – Michael Saunders – voted for an imminent tapering of its bond-buying scheme. That initially sent sterling lower as some had expected the bank's Dave Ramsden to join him.

However, BOE Governor Andrew Bailey later boosted the pound by saying that he is ready to act if the current rise in inflation – described as transitory – has secondary effects such as pushing prices higher. His more determined remarks resulted in sterling outperforming some of its peers against the dollar.

Nevertheless, the greenback remains strong, benefiting from the Federal Reserve's move toward tapering its own bond-buying scheme. Fed Vice-Chair Richard Clarida's comments on announcing a reduction in purchases this year continue reverberating through markets. Most other members echoed his words.

The Federal Reserve Sets the Pace: The world's central bank prepares to taper

In recent days, only the Fed's Neel Kashkari voiced opposition to withdrawing support, saying that some nine million people are unemployed. The labor market is now in focus as the US releases its Nonfarm Payrolls report for July. Economists expect an increase of 870,000 positions, but estimates vary widely, partly a result of mixed leading indicators.

Nonfarm Payrolls Preview: Why the dollar could surge in (almost) any scenario

US July Nonfarm Payrolls Preview: Analyzing major pairs' reaction to NFP surprises

Apart from the headline number, investors will also be watching Average Earnings. Any increase in wages implies higher inflation down the road and a growing chance of tapering.

The question for GBP/USD traders is – will Nonfarm Payrolls outweigh the pound's resilience or not? The answer will be known soon enough.

GBP/USD Technical Analysis

Pound/dollar is benefiting from upside momentum on the four-hour chart and the currency pair escaped dropping below the 50 Simple Moving Average. Moreover, it bounced off 1.3875, which is now a critical support line.

If the NFP sends cable lower, the next cushion awaits at 1.3850, and then only at 1.3760.

Resistance is at 1.3950, the high point on Thursday, and then at 1.3980, July's high. Above 1.40, the first significant cap is 1.4030.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD consolidates near 0.7000 as USD stays weak

AUD/USD holds steady above 0.7000 during Thursday’s Asian session, consolidating the previous day’s recovery gains from a near three-week low as the Democratic sweep in the US midterm elections and Iran diplomacy hopes continue to weigh on the US Dollar. Bulls, however, seem hesitant as focus shifts to Friday’s crucial US NFP report.

USD/JPY drifts lower to 158.25 on hawkish BoJ Minutes, weak USD

USD/JPY trades with a negative bias for the second straight day on Thursday as hawkish BoJ Minutes, showing members agreed to keep raising rates, and intervention risks support the Japanese Yen. Meanwhile, US midterm election results and hopes for Iran diplomacy keep the US Dollar depressed as focus shifts to Friday’s US NFP report.

Gold pops to two-week highs near $4,150

Gold builds on Wednesday’s sharp rebound and flirts with the $4,150 mark per troy ounce on Thursday. The precious metal extends it recovery on the back of the irresolute price action of the Greenback and mixed US Treasury yields following the US midterms elections.

TRUMP token hits record low amid mounting selling pressure

Ripple and Stellar extend their recovery as bearish pressure begins to ease for both altcoins. XRP trades above $1.30 after breaking above the upper trendline of a falling channel pattern, while XLM holds above $0.168 and approaches resistance at $0.173. Meanwhile, improving derivatives metrics and strengthening momentum indicators hint at a potential for further recovery.

NFP stress test: Six payrolls releases, measured in daily-loss limits

Friday's US employment report is usually previewed in terms of the headline number and the reaction in the Dollar. For a growing group of traders, those running funded or evaluation accounts with a fixed daily loss limit, there is a more practical question: how much of that limit can the first hour consume, regardless of direction?

US Dollar breaks below 101.50 as Democrats sweep Congress

The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.