Jignesh Davda
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Focus is on Friday’s US Jobs Report

GBP/USD has fallen into a range after touching fresh two-week lows on Wednesday. The pair seems to be holding above support but Friday’s data release will ultimately drive the pair.

The ADP reported a headline increase of 102 thousand jobs in June. The figure was short of the analyst estimate for a gain of 140 thousand jobs. However, there was an upward revision for the prior month to 41 thousand from the originally reported gain of 27 thousand jobs.

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Wednesday’s ADP report sets the tone for the NFP figures that will be released on Friday. Analysts are expecting the unemployment rate to remain unchanged at 3.6%, a headline increase of 164 thousand jobs and a tick up in average hourly earnings to 0.3%.

I expect that GBP/USD will be more sensitive to Friday’s report than usual. The reason being is that the Federal Reserve will put a lot consideration on how to proceed in July based on that report. Considering that the prospect of near-term US monetary policy easing has been a big driver for the greenback, a volatile reaction appears probable.

Until then, I think it is reasonable to expect GBP/USD to remain within a tight range. US traders are off today in celebration of Independence day which should lead to a significant drop in volatility.


Technical Analysis

In yesterday’s forecast, I discussed the potential of a GBP/USD reversal. I still think the greenback is bearish and that the current dollar bounce is likely to be met with sellers.

However, as we move into the second half of the week, and start to focus on the GBP/USD weekly chart, the technical outlook does not look great for bulls. The pair is on pace to post a weekly reversal pattern if the pair manages to close near current levels.

GBPUSD 4-Hour Chart

We can still see a rally on Friday if the jobs report is weaker than expected. But unless the pair gets well above 1.2600 it might be susceptible to selling pressure next week as a result of the potential weekly candlestick pattern.

Having said that, I see major here at 1.2570, once again derived from a weekly chart. The pair has not closed below it on a weekly basis in more than two years.

Similar to yesterday’s technical outlook, I also see some channel support on a 4-hour chart to provide additional support. The first upside hurdle falls at 1.2605

Bottom Line

  • A range appears likely into Friday’s NFP data
  • Downside support at 1.2570 is significant on the higher time frames
  • A break above 1.2605 alleviates some of the downside pressure seen for most of the week.
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