British pound forecasts and predictions on Friday the 4th April

By Rob Samson

The pound sterling (GBP) is looking stable as we head into a busy day of data. There is nothing from the UK due, so drivers will be external and technical in nature.

Today's big events for the currency markets

This Friday we have nothing due from the UK. Rather, traders focus on German February Factory Orders m/m & y/y, Germany March Construction PMI, Swedish February Service & Industrial Production, German, French, Italian and Euro-Zone March Retail PMI.

The big driver for markets though is the release of the US Nonfarm Payrolls (Mar) at 13:30. Markets are looking for a reading of 200K.

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16:52: A higher US dollar in the longer term

In their weekly forex note, Swissquote Bank say the GBp-USD is likely to stay rangebound for the medium-term, however the longer-term will favour the USD:

"The US and the UK are quite comparable in their growth outlook, suggesting a rather neutral stance on GBP/USD. However, the more balanced nature of the US recovery compared to the UK is likely to favour more upward pressure on US rates than on British rates.

"Overall, with extraordinary monetary policies slowly coming to an end, we see the US as the fittest economy to stomach a gradual rise in interest rates. As a result, we continue to see compelling reasons to support a higher US dollar in the longer term."

15:25: GBP has flinched vs the CAD

One of the sure-bet trends in FX has cracked. Long-time bull on the GBP-CAD rally, Shaun Osborne, has sounded a warning:

"The GBP has flinched. For the first time in a while, the pound looks vulnerable to the CAD as the cross dips below the base of the Feb/Mar range. The breakdown from the multiple top implies scope for a drop to the 1.80 area from here and leaves the 1.8275/85 area as important resistance now. Given the extent of the rally in the past few months, we can allow for a minor, short-term correction lower. Significant or sustained losses below the 1.7965 area would be more significant and suggest that a broader top might be forming."

15:04: UK economy to outperform say Deutsche Bank

Deutsche Bank are backing the UK economy. This scenario, if correct, this is viewed by us as a reason to back sterling in the long run:

"We think the UK economy could generate above trend economic growth for some time. Issues around whether it will be balanced or not should not be a focus for the equity investor - economic cycles are always driven by credit and if banks continue to be more willing to lend then UK growth will not mean revert as many economists assume will happen over the coming years. The BoE credit conditions survey today was supportive of new borrowing rising.

"Levels of new borrowing are extremely low relative to history. The credit impulse is already positive and if credit growth continues to rise, as our UK banks team anticipate it stays positive. That means above trend GDP growth and with credit growth likely to still be below nominal GDP growth, debt ratios will continue to fall."

14:36: More gains against the euro?

Commenting on the EUR-GBP rate, Alan Colins, Partner at 3 C ANALYSIS, says the GBP is likely to retain a preferred bid with regards to the EUR:

"Initial upside yesterday failed, for the third day in a row, at the top of the daily Ichimoku Cloud and at the 13- and 100-day averages. The subsequent sell-off emphasises a negative tone that we look to extend through the lower end of the Cloud.

13:35: North American data is in

Nonfarm Payrolls: 192K vs. expected 200K, Feb. revised to 197K from 175K.

US March Unemployment Rate: 6.7% vs. consensus 6.6%, good news though as the labour force participation rate inched higher to 63.2% from 63% in Feb

Canadian dollar is rallying, the Canadian Unemployment Rate (Mar) fell to 6.9%, markets had expected it to stay at 7%.

"If you're not watching Canadian payrolls you're doing it wrong. Big beat blasting USDCAD to a 1 month low," - WorldFirst.

13:14: Countdown to NFP

At 13:30 the US Non-Farm Payrolls are released. Shaun Osborne at TD Securities says markets are hinting that they are expecting a beat on the 200k consensus forecast:

"The market is looking for decent gains in payrolls overall and TD, like the more accurate NFP forecasters according to a Bloomberg story this morning, is going for a number in the teens.  

"The whiff around market expectations seems to suggest a gain of a little more than 200k is really where the market is (with a close eye kept on revisions) on payrolls.  That sort of number should be USD-supportive, lift US interest rates and embellish the broadly better bid tone seen in the USD in the aftermath of the ECB meeting yesterday."

11:52: GBP/AUD may rebound

While we are on the topic of the AUD, this note from Citigroup:

"Fundamental: AUD may outperform due to the recent improvements in housing market and export.

"Technical Analysis: GBP/AUD may rebound toward 1.8368, with near term support at 1.7850-1.7875."

11:43: Exchange rate forecasts from ANZ

ANZ Research have today issued the following sterling exchange rate forecasts in their Australian Economics Weekly:

Pound vs the Aus dollar: 1.92 by June 2014, 1.96 by September and 2.040 by December.

The pound dollar is forecast at 1.69 by June, 1.72 by Sept and 1.73 by December.

The euro pound is seen at 0.82 in June, 0.81 in Sept and 0.82 by December.

11:36: Pound euro - Room for further upside

Sasha Nugent at CaxtonFX gives her predictions for the pound euro pairing:

"The ECB press conference remains the significant driver in this pair, and after the central bank claimed measures such as negative deposit rates and QE were discussed, the euro sell off began. The market now feels more confident the ECB will step in to fight deflationary pressures within the next few months.

"With the rate currently fluctuating marginally above 1.21 and the market’s focus on the Draghi’s comments, we see room for further upside during today’s session."

10:28: Further warnings of heavy undertone to GBP-USD

In addition to the comments from Lee, we consider this viewpoint issued by Emmanuel Ng at OCBC Bank:

"GBP-USD was weighed by the EUR-USD on Thursday with the former now contemplating its 55-day MA (1.6581). We remain on the sidelines (admittedly with an increasing heavy undertone) with respect to the pound against the dollar in the near term although the disappointing composite and services PMIs released yesterday may play into the hands of sterling doves."

10:24: Downside risks seen

With technical considerations being the key driver of the UK pound at present it is important to note the price action on the crosses. Sean Lee at FXWW reckons declines could lie ahead:

"Yesterday’s price action confirmed to me that we are in a short-term holding pattern between 1.6470/1.6680 and as we are near the middle of this range now, I don’t have a strong bias.

"However, with important EUR/GBP support not far away at .8250 and with both GBP/CAD and GBP/JPY looking short-term ‘toppy’ to my eye, I think we are more likely to see the downside tested in cable first."

09:39: Exceptionally strong data would knock GBP-USD

"While the UK services PMI was a little lower than expected yesterday, it remained at high level relative both to the other major economies and to history, and doesn’t seem to be a reason for GBP to weaken significantly, particularly given Carney’s indication that rates could rise before the next election. While the UK current account deficit position can be seen as a reason to favour the EUR over GBP, GBP/USD looks much more like a relative interest rate call, so GBP/USD should be well supported near 1.6540 on anything but exceptionally strong US data." - Lloyds Bank Research.

09:05: GBP/CAD's big day

The GBP/CAD has been stuck in a rut for a couple of months now with the strong rally in place since October 2013 fading.

We could however see a break in the range today with Net Change in Employment (Mar) figures due at 13:30. Analysts predict 20K jobs will have been added, anything less will be CAD negative, anything more CAD-positive.

09:03: GBP-USD to be driven by US events

"GBPUSD extends weakness post-PMI services frustration. Well supported above 1.6570 (MACD pivot), the direction is to be defined by USD leg in New York. Option offers trail below 1.6570, while light barriers are to be cleared pre-1.6650/1.6700. Stops are seen above." - Swissquote Bank in their morning currency forecast.

08:56: The lay of FX land

The sterling exchange rate complex is stable on Friday morning with the Services PMI miss of Thursday failing to have any lasting negative impact. Weakness is being seen against some of the commodity dollars but again nothing serious to report.

The pound euro has edged higher as the investors are of the opinion that some kind of stimulatory trick is lurking up the sleeve of the ECB who yesterday kept policy unchanged. It was talk of quantitative easing in the post-decision press conference that saw markets sell the EUR.