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FOREX: British Pound Forecast Depends on US Nonfarm Payrolls

FOREX: British Pound Forecast Depends on US Nonfarm Payrolls

David Rodriguez, Head of Product
British_Pound_Forecast_Depends_on_US_Nonfarm_Payrolls_body_gbp.png, FOREX: British Pound Forecast Depends on US Nonfarm Payrolls

Fundamental Forecast for British Pound: Bearish

Impressive UK economic data helped fuel an important British Pound rally against the US Dollar (ticker: USDOLLAR), but a key week of forex event risk threatens the nascent GBP recovery.

An important week of US event risk is likely to force sharp moves across key forex pairs in the days ahead, and we’ll keep an especially close eye on Friday’s US Nonfarm Payrolls report to gauge implications for the resurgent GBPUSD. The British Pound rallied for the first week in five, and the sharp bounce from monthly lows suggests bulls may not have given up just yet.

On the domestic front, FX traders will look to UK Consumer Credit, GfK Consumer Confidence, and Purchasing Managers Index Manufacturing and Survey Index results. A strongly better-than-expected GDP growth report lifted expectations for UK economic fundamentals, but it remains to be seen whether the lagging Q3 data points to more robust growth in Q4 and beyond.

From a technical perspective, continued GBPUSD failure at key resistance of $1.6177 would put the currency’s recovery in doubt. The British Pound was the second-best performing G10 currency through the past week of currency trading, but the GBP had lagged the Euro and others by a sizeable margin prior to its post-GDP recovery. Whether or not this is the start of a bigger reversal may very well depend on the coming week of price action.

We’re strong believers in seasonal tendencies across forex markets; currencies tend to set their highs and lows for the week/month/year at the beginning and end of each period. In concrete terms, the British Pound/US Dollar pair has failed to reach the same heights seen through the first week of October. The next question is clear—can it hit fresh lows in the final week and/or set the stage for a broader recovery in November?

It will be critical to watch key US economic data in the days ahead. Given the US Presidential elections less than two weeks away, market conditions may be tense. It’s always difficult to predict how financial markets react to political events. Yet one thing is clear: traders do not like uncertainty. The next two weeks of trading could decide the trajectory of the British Pound and US Dollar through November and end of year. - DR

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.