GBP/USD Forecast: Brexit headlines support GBP ahead of US NFP

GBP/USD has gained traction early Friday following two-day decline.
Brexit headlines seem to be helping the British pound stay resilient.
The pair could reverse its direction on a strong US jobs report.

Eren Sengezer FXStreet

GBP/USD has gained traction and climbed above 1.1200 early Friday after having erased all of its weekly gains in a two-day slump. The pair is trading in between key technical levels and the market reaction to the US September jobs report could reveal the next short-term direction for the pair.

Hawkish comments from Fed officials and the souring market allowed the dollar to preserve its strength on Thursday and forced GBP/USD to lose more than 1% for the second straight day. Fed Governor Christopher Waller reiterated that inflation is far from the US central bank's target and added that they need to use policy aggressively to bring it down. Commenting on the inflation outlook, newly appointed Fed Governor Lisa Cook said that they need to keep the restrictive policy until they are convinced that inflation is firmly on the path to 2%.

On a GBP-positive note, Irish Foreign Minister Simon Coveney said on Friday that he had a very good meeting with British Foreign Secretary Cleverly on Northern Ireland Protocol on Thursday. "We do not think we should get carried away with warm language but the new UK government is up for serious discussion," Coveney added.

Nevertheless, investors are unlikely to put too much weight on Brexit developments at this stage and the Nonfarm Payroll's data should dominate the pair's action in the second half of the day.

Markets expect NFP to rise by 250,000 in September. A stronger-than-forecast growth in NFP could provide a boost to the dollar and trigger another selloff in US stocks. In that scenario, the pair is likely to turn south and end the week on a bearish note. On the other hand, an NFP reading of 200K or lower could cause the greenback to suffer heavy losses against its major rivals.

Nonfarm Payrolls Preview: Five scenarios for trading King Dollar as markets plead for pain.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the four-hour chart is moving sideways near 50, reflecting the pair's indecisiveness. On the upside, 1.1270 (Fibonacci 23.6% retracement of the latest uptrend) aligns as initial resistance before 1.1300 (20-period SMA) and 1.1400 (200-period SMA).

Supports are located at 1.1130 (Fibonacci 38.2% retracement, 50-period SMA), 1.1100 (psychological level) and 1.1030 (Fibonacci 50% retracement).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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