GBP/USD Forecast: Without white smoke, the pound chokes, jobs report in focus

What just happened: Brexit is stuck, US-Sino talks are worse off

GBP/USD has been on the back foot as critical Brexit, and trade talks have not gone anywhere fast. The UK government and the opposition were reportedly on the verge of ending discussions on a path forward on Brexit, but both sides continue talking. PM Theresa May was forced to concede that Britain will participate in the European Parliament elections later this month. She had previously wished to seal the Brexit deal and skip the elections altogether but now aims for an exit on July 2nd, before MEPs take their seats. 

Miserable results for her Conservative Party and also the opposition Labour in local elections on May 2nd triggered hopes that both parties would come together, but these hopes did not materialize. While both sides continue talking, a breakthrough, especially on the thorny topic of a customs union, seems far from reach.

US-Sino talks on trade are in an even worse situation. China reportedly retreated from various commitments related to intellectual property and forced the transfer of technology. President Donald Trump responded angrily and said that "China broke the deal." His tweets turned into new American tariffs on China by the end of the week. At the time of writing, China has said it would retaliate but has not sent back its delegation from Washington.

Economic data in both countries has been mixed and was overshadowed by politics. The UK economy grew by 0.5% in the first quarter of the year and 1.8% on an annual basis. However, the stockpiling due to fears of a hard Brexit were behind most of the expansion, so GDP may be adversely impacted by a reversal of this trend in the second quarter. 

The US trade balance deficit was slightly narrower than had been expected while weekly jobless claims came out worse than expected.

Fed officials stuck to the script of remaining patient on interest rates.

UK events: All about the money

Cross-party talks are unlikely to yield any outcome. The July 2nd deadline is far and also artificial: the EU's deadline for Brexit is October 31st. Moreover, as the European elections near, neither party will want to seem as making concessions to the other side. Ongoing talks in the background may still result in a breakthrough, lifting the pound, but chances are low.

Developments related to Brexit are set to remain dominant in Sterling movements, but at least on Tuesday, will have to compete with the jobs report. The UK enjoys a low unemployment rate of 3.9% as of February, and no change is expected. The same applies for wage growth, which stands at an annual rise of 3.5% including bonuses or 3.4% excluding them. Jobless claims have not been shining of late, with consistent rises. Another increase of over 20K is projected in the Claimant Count Change figure for April. Nevertheless, the increase in claims has yet to push the jobless rate higher. 

Here are the events lined up in the UK on the forex calendar:

US events: Consumer and trade in the limelight

Trade talks or lack thereof remain left, right, and center. When the world's largest economies clash, markets are watching closely. Positive developments are set to improve the sentiment and push GBP/USD higher while further deterioration may move the currency pair lower.

Retail sales stand out on the economic calendar on Wednesday. Consumption is critical in the world's largest economy, and any fluctuations have a substantial impact on markets. The data for March was impressive, with an increase of 1.6% on the headline and 1% on the all-important control group. The information for April is set to be more modest, with a rise of 0.2% in overall sales and 0.4% in the highly-regarded core figure.

Housing data and jobless claims are of interest on Thursday ahead of another consumer-related figure on Friday. The University of Michigan's preliminary consumer sentiment index for May is forecast to remain around 97 points. The indicator is seen as a hint towards the next retail sales report and may have an outsized impact as it is the last data point for the week.

Here are the scheduled events in the US:

GBP/USD Technical Analysis 

The technical outlook for pound/dollar is mixed. The currency pair is trading close to the 100-day Simple Moving Average and between the 50 and 200 ones. Momentum is marginal to the downside, and the Relative Strength Index is flat around 50. There is no clear direction.

1.3030 capped GBP/USD in recent days. The next cap is at 1.3080 which held it down in early April. The early-May peak at 1.3180 is a notable resistance line. Next up, we find 1.3270 capped a failed attempt to rise in mid-March. 

The 1.2960-1.2970 area is critical support. The region includes the March low, a swing low in May and also the 200-day SMA. Further down, 1.2870 was the low point in April. Lower, we find levels dating back to February. 1.2775 was a low point in mid-February, and 1.2670 was seen in January. 

GBP/USD Sentiment

After suffering from the deterioration between the US and China, expectations are now lower. As long as talks continue, GBP/USD has some room to recover, assuming the UK jobs report does not disappoint. 

The FXStreet Poll shows that the short-term bias is bearish but experts expect an improvement later on. The medium-term target has been downgraded more than most. As time passes by, it seems that Brexit pessimism is taking over. 

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