Pound Forecast to Potentially Slide to 1.2650 v US Dollar in Week Ahead
GBP/USD fell sharply to 1.28 on Friday, May 26 in a move that has shifted the configuration of this exchange rate.
As a result, our studies confirm the charts now point to the potential for a deeper decline, particularly if the pair can break below last week’s 1.2772 lows.
The exchange rate pierced through a major trendline on Friday and although it retraced back above it, a rebreak is highly likely.
If it rebreaks through the trendline it will increase momentum lower, reaching 1.2748 initially where the monthly pivot is situated.
The monthly pivot, a level traders use to gauge the trend, will provide an obstacle to the bear-trend but a break below 1.2720 would, we think, see a continuation lower to a target at 1.2645.
Data for the Dollar
The most important release for the Dollar in the week ahead will be Non-Farm Payrolls (NFP) at 13.30 BST on Friday, June 2.
The consensus amongst analysts is that NFP’s will show another month of steady job gains, solidifying expectations of a June rate rise and thereby leading to a rise in the Dollar – fall in GBP/USD.
“In the U.S the publication of non-farm payrolls for May will attract the most attention. Jobless claims in the month fell to their lowest level since the 1970s, suggesting a decline in layoffs. As for hiring, Markit’s composite PMI reported the fastest rate of job creation in three months in May. Based on these indicators, we expect payrolls to have risen by about 185K, lower than April’s increase but still a very good number considering it is becoming increasingly difficult for American firms to find qualified workers,” said NBF Economics at Strategy.
The other major release from the US will be the Personal Consumption Expenditure Deflator or Index (PCE), which is out at 13.30 on Tuesday, May 30.
The index is expected to show annual growth of 1.7% and 1.5% for Core.
Compared to the previous month Core PCE is expected to have risen 0.1% from -0.1% in March.
The PCE is the Federal Reserves favoured inflation gauge so its results will impact on the Dollar if they are substantially out of whack with expectations.
Data for the Pound
UK data picks up towards the end of the week as the new month gets underway.
Manufacturing PMI for May is out at 9.30 BST on Thursday, and Construction PMI, out at 9.30 on Friday.
Manufacturing activity is expected to fall to 56.5 from 57.3 – only a deeper decline, however, would be market moving.
Last month's Manufacturing PMI reached a 3-year high on the back of a surge in New Orders so the overall view supports a shallower decline if anything.
“We look for PMI to hold onto most of last month’s gains with just a small pull-back 57.0,” said Canadian investment bank TD Securities.
A similar marginal decline to 52.7 from 53.1 is foreseen in construction activity in May, out on Friday, June 2.
House Prices are also out at 7.00 on Thursday.
Of probably more import in terms of sterling’s fluctuations are poll results for the up-and-coming June elections.
The Pound weakened last week after Theresa May’s lead was cut to only 7% from 19%, as the possibility of her having a powerful majority declined.
We watch upcoming polls with interest for signs that the Conservatives have stabilised.
Recall Sterling move sharply higher when May called the election as markets assumed she would be able to secure a stronger majority in parliament that would allow her a strong hand in upcoming Brexit negotiations.
It also provides the prospect for political stability over coming years in which a decent transitional period for Britain's exit from the EU is possible.
A weak government throws all these assumptions into doubt.
