Despite Strong NFP Data, GBP/USD Forecast to Find Support at 1.5080

The British pound managed to hold onto the 1.51 zone at the week's close despite an impressively strong US employment report.

Sparking fresh dollar buying ahead of the new week was news that the US created 211K jobs in November, well above the figure of 200K predicted by economists.

The pound to dollar exchange rate rose back above 1.51 on the inter-bank spot market and it looks like a clear line of support at 1.5080 is forming on the hourly charts which could provide reassurance to sterling bulls at the start of the new week.

High-street banks are seen offer a rate in the region of 1.47. Specialist currency providers are seen offering closer to the market at around 1.4950, a huge improvement for savvy market-watchers looking to make larger payments.

The rally in the exchange rate will surely be welcomed by those paying out in sterling, but the respite could prove to be short-lived as the US dollar is tipped to dominate currency market focus heading into mid-December.

Above: Sterling given a boost by the ECB decision, but the trend remains heavy.

Fed Playing Russian Roulette With a Bullet in Every Chamber

The most important data release on the US monthly calendar is the non-farm payroll release as employment is central to how US Federal Reserve decision making progresses

Markets had priced the US dollar exchange rate complex for a reading of 200K jobs being added to the economy in November, the beat at 211K had the predictable result of encouraging a reversal of some of the USD losses seen over the course of the past 24 hours.

Numbers for the previous two months were revised up by a cumulative 35,000 and monthly job gains have averaged 218,000 over the past 3 months. The jobless rate remained at an unchanged 5.0%, even as the participation rate rose by 0.1pp to 62.5%.

The U-6 underemployment rate edged back up to 9.9%, after falling from 10.0% to 9.8% in October while average hourly earnings increased another 0.2%, following a 0.4% gain in October.

The US Federal Reserve is now almost certain to raise interest rates in mid-December and the employment figures were never likely to sway the decision.

“For months the odds of a US interest rate rise have been akin to those of Russian roulette," says David Lamb, head of dealing at FEXCO, "but when the Fed’s rate setting committee meets in December, it’ll be playing with a bullet in every chamber."

“With October’s barnstorming numbers revised upwards, and job creation in November comfortably over the magic 200k mark, such robust performance will mean the Fed is running out of reasons not to raise rates this month," says Lamb.

What is certain is that the strength of recent data could impinge on what the Fed says about future interest rate rises; something that is becoming increasingly important to the dollar’s outlook. "With a majority share of the market pricing in a 0.25% hike, now the pertinent question is not whether or not the Fed will hike, but rather by how much," says Alex Lydall at Foenix Partners.

If Yellen is to hike cautiously Lydall says a strong dollar might not transpire in the short term. "Following this, movement of the dollar into 2016 will largely be depicted by the pace and path of interest rate hikes," says the analyst.

Barclays are also adopting a less-agressive stance on the dollar noting that the Fed will be coy on raising interest rates too fast over coming months:

"The November payroll report surprised modestly to the upside, cementing a December hike. Front to intermediate yields look reasonable in the context of a gradual hiking cycle with downside risks."

A Chance to Sell the Pound to Dollar Conversion

From a strategic perspective, the recent recovery continues to hold sway over future direction in the exchange rate.

“For now, this rally simply looks to be another chance to sell. The strong bullish candle is undeniable but the rally has just unwound the pair into a resistance band $1.5100/$1.5150. The RSI has unwound back towards 50, the Stochastics have picked up near term but again this is likely to be a near term move,” says Hantec’s Perry.

Hantec believe the pound sterling bulls need to continue to push higher through the $1.5150 resistance and to post another positive candlestick.

A close back below the support band $1.5050 would be a negative move.