- GBP/USD has topped 1.38 in the latest spell of dollar selling.
- Nonfarm Payrolls could send the overstretched dollar back up.
- Friday's four-hour chart is painting a bullish picture for cable.
Better late than never – that is what pound bulls have been thinking. GBP/USD has finally staged a convincing break above the tough 1.3785 line and the 1.38 round number. It owes to dollar weakness rather than sterling strength.
The greenback suffered three blows of weak data points on Tuesday and on Wednesday. Leading indicators toward Friday's Nonfarm Payrolls – from consumer confidence through ADP's labor figures and to the ISM's manufacturing employment component – have all lowered Nonfarm Payrolls expectations. The dollar dropped in response and later extended its decline.
Thursday's greenback grind is what finally sent GBP/USD higher, allowing it to catch up with other currencies' rallies against the dollar. Nevertheless, there are several issues dogging sterling.
Markit's final UK Services Purchasing Managers' Index for August was downgraded from 55.5 to 55 points, reflecting some weakness in the British economy. Chancellor of the Exchequer Rishi Sunak is set to unveil new taxes, breaking an election pledge by Prime Minister Boris Johnson, who is already under fire for the hasty retreat from Afghanistan.
The most worrying issue for the UK is the persistently high number of COVID-19 cases, which could slow the economy even without new top-down restrictions. Brexit-related shortages of lorry drivers are not helping either.
Circling back to America's jobs report, expectations are low, and that increases the chances of an upside surprise and a squeeze of dollar shorts. The economic calendar is pointing to an increase of 750,000 positions, but the "whisper number" is closer to 700,000. Wages are also of importance, as their rapid increase indicates inflation down the pipeline.
- NFP Preview: How low can the dollar go? Extremely low expectations point to a greenback comeback
- US August Nonfarm Payrolls Preview: Analyzing major pairs' reaction to NFP surprises
- Nonfarm Payrolls August Preview: Sine qua non for the taper
Overall, the dollar may turn back up.
GBP/USD Technical Analysis
Contrary to fundamentals, the four-hour chart is painting a bullish picture. Pound/dollar broke above the 200 Simple Moving Average, the stubborn 1.3785 level and downtrend support. It is also benefiting from upside momentum while the Relative Strength Index remains under 70 – outside overbought conditions.
Resistance awaits at 1.3850, the fresh high. It is followed by 1.3875 and 1.3895, which both capped recovery attempts during August. Further above, 1.3950 and 1.3985 await.
Support below 1.3785 is at 1.3725 and 1.3675, both stepping stones on the way up. The next lines to watch are 1.3635 and 1.36.
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