GBP/USD Forecast: Sterling selling opportunity after the NFP? Here is why

GBP/USD is set to rock in response to the all-important US Non-Farm Payrolls report.
Downbeat job figures may boost GBP/USD, yet Britain's issues may push it down.
Friday's four-hour chart is showing that momentum remains to the downside.

Yohay Elam FXStreet

Cable is at the crossroads, finding its feet and looking for a direction – and that next move could be a zig-zag, first up and then down. That may present a selling opportunity.

Disappointing NFP?

The surge may emerge from the all-important US Non-Farm Payrolls figures for August. The economic calendar is pointing to an increase of 1.4 million jobs, but there are reasons to expect a lower figure.

First, the employment components of ISM's purchasing managers' indexes both pointed to contraction – both in services and in manufacturing. The weakness in hiring comes despite the broad expansion.

Second, ADP's private-sector labor figures missed estimates with an increase of only 428,000 positions last month. Skeptics are rightly pointing to the fact that America's largest payroll firm has been off the mark in recent months. However, contrary to previous months, ADP did not make a meaningful upward revision to July's figures – indicating it is more convinced of the slowdown in hiring.

Third, a seasonal quirk that pushed July's statistics higher is not in play in August. Economists probably took that into account, but perhaps not fully.

Overall, an increase of fewer than one million jobs cannot be ruled out and that could weigh on the dollar.

Pound problems

After the NFP dust settles, there is room to refocus on Britain's issues. Leeds, a large northeastern city, is facing lockdown amid an increase in coronavirus cases. The UK's virus situation is much improved in comparison to the worst of the crisis, but it is not out of the woods.

Brexit talks remain deadlocked and there is also little progress in preparations for the day after the transition period ends. Concerns about the state of customs may also weigh on sterling.

Apart from Brexit, another time bomb looms – the expiry of the furlough scheme in October. It seems that the government would like to extend it, yet may have to raise taxes. Investors and the public are unhappy with the miserable choices.

The Treasury paid most of the salaries of workers that were unable to work due to the crisis, keeping them attached to employers and holding a lid on the unemployment rate – only 3.9% as of June.

Rishi Sunak, Chancellor of the Exchequer, briefed fellow Conservative Party members of "difficult times." Officials at the Bank of England echoed that message by warning of a long recovery path.

Overall, US weakness may divert attention from Britain's issues – yet probably only temporarily.

GBP/USD Technical Analysis

Despite the stabilization, momentum on the four-hour chart remains to the downside. Cable is struggling to recapture the 50 Simple Moving Average while still holding above the 100 and 200 SMAs.

Support awaits at 1.3240, Thursday's low, followed by 1.3175 and 1.3120, both stepping stones on the way up. The next lines to watch are 1.3050 and 1.30.

Resistance is at 1.33, a round level that worked in both directions. It is followed by 1.3360, which capped GBP/USD both on the way and when descending. The next levels to watch are 1.3420, 1.3480, and 1.3510.

More What is behind the greenback comeback? Not only the NFP buildup

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 sits at three-week highs above 0.7000 on hawkish RBA-speak

AUD/USD holds a positive bias for the fourth straight day, trading above 0.7000 in the Asian session on Wednesday and at three-week highs. RBA Deputy Governor Andrew Hauser's hawkish remarks and inflation concerns underpin the pair. However, the upside appears capped as the US Dollar attracts some buyers amid looming US-Iran uncertainty.

USD/JPY remains confined in a familiar range below 158.50

USD/JPY sees some dip-buying in the Asian session on Wednesday, though it remains confined within a multi-week range near 158.50 as the uncertainty over the timing of the next BoJ rate hike keeps Japanese Yen bulls on the defensive. Meanwhile, hawkish Fed expectations, bolstered by inflation risks stemming from volatile oil prices, underpin the US Dollar. However, looming intervention fears could limit JPY losses and cap the currency pair.

Gold advances modestly; targets $4,150

Gold prices manage to reverse three consecutive daily declines, trading just below the $4,150 mark per troy ounce on Wednesday. The precious metal’s recovery comes amid a slight drop in the US Dollar, mixed US Treasury yields across the board and a widespread cautious tone from the US-Iran front.

Bitcoin eyes a break above $85,000 as institutional demand returns

Bitcoin edges higher above $83,000, extending its rebound from the 50-day EMA near $80,786. US-listed BTC spot ETFs recorded over $23 million in net inflows on Tuesday, following Monday's $526 million, signaling a return of institutional demand.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.

The US Dollar fell. Gold didn't rally. That tells you everything

Gold (XAU/USD) is struggling to capitalize on a weaker US Dollar (USD), after repeatedly failing to establish itself above the $4,200 level. The precious metal remains confined to a relatively narrow trading range despite a combination of developments that would normally support higher prices.