Can Services PMI and Non-Farm Payroll Data Scupper Rally?
Technical predictions for the Pound to US dollar exchange rate tend to confirm that, despite today's advance, the US dollar remains dominant.
Trading Central, in their latest short-term forecast say:
"Short positions below 1.518 with targets at 1.5095 & 1.507 in extension.
"Above 1.518 look for further upside with 1.525 & 1.529 as targets."
Gareth Berry at UBS tells us the future direction in GBP/USD depends on a key level:
"With the MACD threatening to cross below its zero line, focus in on the key support at 1.5051. A closing break below this would be a bearish development. Resistance is at 1.5254."
Luc Luyet at MIG Bank is also predicting further weakness in the GBP/USD exchange rate:
"GBP/USD has continued to ease lower pushing under 1.5222 (12/07/2013 high). This now weakens the outlook further suggesting that the rise from 1.4814 was corrective in nature. Scope mis now seen for a gradual fall back down to the annual low at 1.4814, over the coming weeks.
"We believe that the BoE's announcement on 7 August should have a negative effect on GBP/USD."
The fundamental picture: We eagerly await next week's Services PMI
While the technical gurus confirm the British pound is struggling against the US dollar we note the fundamental picture is a sight more positive.
The British pound has advanced against the US dollar in Friday morning trade thanks to the release of today's strong Construction PMI (See today's live coverage @9:30 entry) follows on from yesterday's strong Manufacturing PMI reading.
Leander Dreyer at Jyske Bank tells us the next key domestic driver for GBP/USD is next Monday's Services PMI release:
"UK economic indicators continue their positive trend. PMI Industry powered ahead at 54.6 compared to expectations of 52.8. All sub-components showed a very positive development, which bodes well for Q3 in the UK.
"Although PMI Industry only accounts for around 16-18% of the UK economy, further advance in the industry will soon be able to spread to the service sector and, thus, the entire economy.
"We eagerly await the announcement of service sector data on Monday, as a fair advance will support the currently weak GDP."
US dollar strength returns
The problem for GBP/USD bulls is that while the UK economy is seeing good data releases, the US economy is seeing similar positive surprises.
A key feature of global currency markets over the past 24 hours is that of renewed US dollar strength.
Boris Schlossberg at BK Asset Management says:
"The dollar was stronger in afternoon New York trade yesterday after better than expected US economic data and a relatively dovish press conference by Mario Draghi pushed it higher against both the euro and the yen. In US the ISM Manufacturing data printed at 55.4 versus 52.1 markedly beating expectations as hit its best mark in more than 2 years.
"The subcomponents of the report looked very strong as well with employment increasing to 54.4 versus 48.7 while new orders rose to 58.3 versus 51.9. The data showed a huge improvement from the month prior and suggested that US economic activity may be starting to pick up after Q1 stall."
US Non-Farm Payrolls: Look for the little numbers
No doubt, the big event of the day, if not the week, comes at 13:30 London time in the form of the monthly US Non-Farm Payroll release.
Craig Erlam at Alpari UK says predicting the outcome of the data release is tricky:
"The unemployment rate will also be of interest today, given that the Fed is determined to see it fall below 6.5% before it considers raising interest rates, and 7.5% before tapering begins.
"The rate is expected to hit 7.5% today, but I don’t think we’ll see this. Even if we do get a good NFP figure, the forecast doesn’t appear to account for those returning to the labour market, after previously giving up. The increase in the participation rate, as we saw last month, is going to push the unemployment rate higher. We say the opposite at the back end of last year, when unemployment was falling, quite rapidly at times, despite NFP figures being average at best.
"I think the smaller details should also be watched closely today as they will also have a bearing on whether the Fed tapers in September or not.
"For example, we may see a good NFP figure and a drop in the unemployment rate, but if the jobs created are mostly temporary or part-time, the improvement is hardly sustainable and therefore the withdrawal of stimulus would quickly reverse it. Also, things like average earnings and personal spending are also key today."