GBP/USD Weekly Forecast: Poorly positioned ahead of Non-Farm Payrolls, Brexit talks amid coronavirus

  • GBP/USD has been attempting to recover but concerns about US coronavirus kept it down.
  • A new round of Brexit talks and US Non-Farm Payrolls stand out. 
  • Late-June's daily chart is showing bears are gaining some ground. 
  • The FX Poll is pointing to no meaningful recovery. 

Recovery? Not so fast. Optimism about Brexit and upbeat UK figures provided some support but US coronavirus cases triggered a rush to the safe-haven pound. US Non-Farm Payrolls, additional COVID-19 stats, and official EU-UK negotiations stand out as the second quarter draws to an end. 

This week in GBP/USD: Coronavirus concerns and some hopes

Is the UK ready to return to growth? Markit's preliminary Purchasing Managers' Indexes for June beat expectations, with the manufacturing sector even topping 50 points – indicating a return to growth. The Services PMI's leap from 29 to 47 is also encouraging, showing businesses are becoming less pessimistic. 

Another pound-positive development came from reports about potential EU concessions in Brexit talks. Brussels is reportedly ready to cede ground on the level-playing filed topic – allowing London's less alignment of regulations with the bloc in return for access to the single market.

On the other hand, UK coronavirus and deaths remain elevated in comparison to the old continent – with mortalities still above 100 per day. The curve is falling, but the pace remains frustratingly slow.

Source: WorldInfoMeter

While the gradual improvement in UK COVID-19 cases may be too slow, the deteriorating situation in the US is alarmingly worrying. Intensive Care Unit (ICU) in Houston, Texas, ha reached capacity, Arizona lacks sufficient tests, and cases are rising in Florida, California, and many other states.

Source: New York Times

While the number of fatalities is still falling in the US, it may be a matter of time as these move back up, and as restrictions are reimposed. 

US economic data remains mostly encouraging, with Durable Goods Orders bouncing by 15.8% in May, beating estimates. Weekly jobless claims disappointed with nearly 1.5 million while continuing claims dropped below 20 million. 

Markets knee-jerked lower when Peter Navarro, the hawkish White House adviser, said the trade deal with China "is over". A quick correction by President Donald Trump helped soothe investors, but tensions remain high. 

Trump has been trailing rival Joe Biden by around 10% in the polls, and markets – usually favoring pro-business Republicans – began taking note. 

Overall, hopes for recovery were marred by the coronavirus comeback and other developments, capping GBP/USD's recovery. 

UK events: Brexit is back

The EU and the UK resume talks on future relations on Monday – the first round of negotiations after Prime Minister Boris Johnson held a call with European counterparts. Is the "tiger in the tank" like the PM said?

Optimism about a breakthrough now comes to a test. If both sides leak details of a disagreement, sterling could suffer, while radio silence could provide some solace. Michel Barnier, the EU's Chief Negotiator, is set to address the press on Friday. 

The highlight of the UK economic calendar awaits traders on Tuesday, with the final Gross Domestic Product figures for the first quarter. Britain will likely confirm the 2% contraction, which is relatively moderate in what is likely in store for the second quarter.

Final PMIs and a couple of speeches from Bank of England officials are also of interest, yet UK coronavirus stats are of higher importance. The government's next easing of the lockdown depends on improvement and that front. 

Here is the list of UK events from the FXStreet calendar:

US events: Non-Farm Payrolls and COVID stats

Will states reinstate stay-at-home orders? Investors are hoping that the new coronavirus hotspots are able to cope with rising infections, yet that may not be the case. Hospitalizations and deaths are also critical to governors' responses and to the market mood. Further worsening may weigh on stocks and boost the greenback. 

Sino-American relations are tense but the topic has been on the backburner. Another flare-up – either around Huawei, Hong Kong, or trade – may hurt sentiment. As long as the trade deal stands, a significant sell-off is unlikely. 

The American economic calendar is packed. Jerome Powell, Chairman of the Federal Reserve, will testify alongside Treasury Secretary Steven Mnuchin on Capitol Hill. After the recent rate decision and the Fed's buying of corporate bonds, can Powell still surprise markets? His unequivocal support has been crucial in keeping shares bid and the dollar down. No change is likely anytime soon.

The Conference Board's Consumer Confidence gauge for June may show a downturn – or potentially no significant recovery. The increase in COVID-19 cases has already deterred people from going out and that could be reflected in the survey.

ADP's employment figures for June are projected to show gains of millions of jobs. America's largest payroll provider reported a relatively small loss of positions in May but missed the surge in jobs the government later report. It may do some catching up this time. While the correlation between ADP's statistics and official figures was sketchy last month, it will likely be a market mover. 

The second hint toward the official Non-Farm Payrolls comes from the ISM Manufacturing PMI. Economists expect another move forward, but for the forward-looking indicator to remain below 50. 

Wednesday's packed agenda ends with the Fed's meeting minutes from the latest rate decision. The bank decided to maintain bond-buying at a pace of around $4 billion per day and signaled to keep borrowing costs low at least until 2022. The document may reflect how worried officials are, and if they consider additional measures. One day after Powell's testimony and ahead of the NFP, the minutes may receive a muted reaction, but surprises cannot be ruled out.

In a rare timing, Non-Farm Payrolls are released on Thursday – as Americans enjoy the Independence Day weekend holiday on Friday. After May's surge of around 2.5 million jobs, another multi-million increase in positions is on the cards. The Unemployment Rate is expected to extend its decline but remains above 10%. 

Is the US job market extending its recovery? Statisticians and economists are having a hard time assessing the situation in these exceptional times. Wage growth has likely remained elected as low-earners were hit more than those making more money and able to work at home. 

Weekly jobless claims and factory orders will also be watched but the NFP is the "king of indicators" and will likely determine the dollar's moves through the end of the week. 

Here the upcoming top US events this week:

GBP/USD Technical Analysis

Pound/dollar has been making attempts to recapture the lost uptrend support line that accompanied it from March to mid-June. However, these moves failed and the currency pair also struggles to hold onto the 50-day Simple Moving Average. Momentum remains tot he upside, but it is petering out.

All in all, bears are in the lead.

Some support awaits at 1.2225, a stepping stone on the way up. Further down, 1.2160 provided support in late May and also beforehand. May's trough at 1.2075 is next down the line.

Immediate resistance awaits at 1.2360, which quickly switches from support to its current role. The next line 1.2460, which was a swing low in mid-June. The late-June peak of 1.2550 is next. Strong resistance awaits at 1.2680, which was another swing high and also converges with the 200-day Simple Moving Average. The monthly peak of 1.2815 is next. 

GBP/USD Sentiment 

Concerns about coronavirus in the US – and lack of action – may not be reflected in the data just yet, but could still fell markets and boost the greenback. A Brexit breakthrough may also have to wait and without it – sterling may continue suffering. 

The FXStreet Forecast Poll is showing experts do not expect a meaningful recovery. The short-term bias is neutral, then bearish, and finally sideways in the long term, but all targets are in the 1.23 handle. Average goals are little changed in comparison to the previous week.

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