The GBP/USD Forecast for Next Five Days

We expect the Pound to Dollar rate to ultiamtely extend its upside bias with the proviso that there is a possibility of a short-term pull-back now that sturdy resistance has been met at the 1.3000 level.

The pair is moving up within a rising channel on the daily chart; the short-term trend is bullish and expected to extend.

It has broken above the peak of the early June highs and moved up to 1.3025 as we forecast in an earlier report.

The R1 monthly pivot at 1.3026 is acting as an obstacle to further upside, however, and there is a chance the pair may pull-back.

Nevertheless, eventually it will probably successfully break above the pivot and move into the 1.30s.

The MACD has moved above its zero-line, which is a signal that the trend has turned higher.

A break above the 1.3060 level would confirm a break above the pivot and probably a continuation higher to the next target at the top of the channel at 1.3200.

Data, Events for the Dollar

The US labour survey, including Non-Farm Payrolls (NFPs), is the main release in the week ahead.

It is scheduled for release on Friday, July 7, at 13.30 BST.

The current consensus forecast is for a 177k rise in payrolls in June from 138k previously.

The Unemployment Rate is expected to stay the same at 4.3%.

Average Hourly Earnings, important because it is a lead on inflation, is forecast to rise 2.6%.

Investment bank TD Securities see marginal downside risks for payrolls, predicting a 170 result, and marginal upside for earnings of 2.7% rather than the market consensus of 2.6%.

TD think the Dollar could rally if wages surprise to the upside as it will indicate potentially higher inflation and interest rates.

“We think wage growth will ultimately drive the market response due to weak inflation concerns. Calendar effects suggest a strong 0.3% AHE print boosting the y/y pace to 2.7%, with upside risks. ‎We forecast a stable u-rate at 4.3%, with a risk lower,” said TD.

With so much emphasis on what central banks are planning, and the general feeling that they are all moving towards raising interest rates, the minutes from the Federal Reserve’s June meeting, released at 19.00 on Wednesday, July 5, are expected to garner substantial interest.

This could be a bullish release for the Dollar if the Fed continues in its recent optimistic and hawkish refrain - hawkish means in favour of raising interest rates.

In a busy week for the Dollar, Monday, July 3, at 15.00 sees the release of ISM Manufacturing, which is forecast to 55.2 from 54.9.

Factory Orders are released on Wednesday at 15.00 and expected to show a -0.5% fall in May, which would be deeper than the -0.2% of April.

Thursday sees the release of ADP Non-Farm Payrolls which is often held as a heads up for NFP’s on the Friday but which, in reality, shows little correlation.

Data for the Pound

The next week is dominated by PMI survey data for June, which shows monthly changes in activity in key sectors of the economy.

PMI’s are plotted on a gauge, with a result below 50 representing contraction and above 50 expansion.  

On Monday at 9.30 BST Manufacturing PMI is released and is expected to tick down to 56.5 from 56.7.

On Tuesday at the same time Construction PMI is forecast to fall to 55.00 from 56.00.

Finally, on Wednesday the most important PMI for the Services sector is forecast to show a fall to 53.5 from 53.8.

The results will be analysed within the context of ongoing concerns about growth given the sharp slowdown which has occurred on the high-street and the fall in real wages.

Investment bank TD Securities see a chance of an even deeper undershoot than consensus, with Manufacturing falling to 55.7 rather than 56.5 and Services to 52.8 rather than 53.5.

“Given the political uncertainty that came out of the general election, we look for a decline in the June PMIs, though much more moderate than the post-Brexit shock last year. We saw the first hint of that kind of reaction with the GfK consumer confidence survey, which saw a fairly sharp decline in June.”

Clearly a surprisingly weak figure will hurt sterling.

Other data includes Manufacturing and Industrial Production, the NIESR GDP Estimate and Halifax House Prices, all out on Friday at 09.30 BST.