5-day Pound-to-Dollar Rate Technical Forecast, Data + Events Calendar
Technical studies suggest the GBP/USD will continue to trade with an upside bias but the Conservative party conference and US payroll data will be key items to watch in the calendar.
GBP/USD is seen trading softer at the start of the new week, and month. Quoted at 1.3342 the exchange rate is down 0.37% but is still up a healthy 3.13% over the course of the past month.
"October kicks off with a pretty meat and potatoes week for the markets, a string of PMIs leading to the US non-farm jobs report on Friday," says Connor Campbell at Spreadex in London. "The Dollar quickly dominated trading this Monday, rising on the lingering effects of last week’s hawkish Yellen/Trump tax plan double-whammy."
The charts show that the Pound-to-Dollar has pulled back over the last two weeks and has now found support at the upper borderline of a wedge-shapped pattern.
The combination of the support provided by the border and the fact the pair has pulled-back two weeks in a row in the midst of a strong uptrend increases the probability that the pair is about to resume its uptrend in the week ahead.
The MACD momentum study is still rising in line with the uptrend, which is a bullish indication.
On balance we expect the trend to continue higher but would ideally like to see a break above the 1.3645 highs for confirmation, with the next target at 1.3730, just below the R1 monthly pivot, a level traders use to trade against the prevailing trend.
The pair has just encountered a major support and resistance line, in the shape of the 2009 lows at 1.3509 - which could well support the Pound over coming days.
"The Pound, which is currently the strongest currency against the dollar in terms of near-term trend has seen weakness this week, but so far support continues to hold," says Phil Seaton at LS Trader.
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News and Events to Watch for the Dollar
The main event for the Dollar in the coming week is Non-Farm Payrolls, out at 13.30 BST on Friday, October 6, about which there appear to be a wide variation of forecasts.
Some analysts think the result will be very low, at around 75k, because it will reflect the impact of Hurricane Harvey, whilst others, such as Market IHS, say their employment indicators estimate Payrolls will come out at a robust 180k.
The figure for the previous month of August was 156k.
Of great interest will be wage component, as the Fed is banking on wages rising in line with the tighter labour market; in August wages were 2.5%, but will probably need to rise a little higher, to support the Federal Reserve's plans to raise interest rates before the end of the year.
Recent data and speeches from Fed officials indcaates the central bank may be cooling on the idea of raising interest rates before the end of the yeat, says BK Asset Management's, Managing Director, Kathy Lien:
"A number of the Federal Reserve officials who spoke this past week did not sound as enthusiastic about raising interest rates and data, including the latest personal income, spending and PCE deflators were softer. We’ll hear from more Fed Presidents in the coming week and perhaps their views will be different."
Another major release for the Dollar is ISM Manufacturing at 15.00 on Monday, which is expected to pull-back to 58.0 and ISM Non-Manufacturing at the same time on Wednesday, which is forecast to show a small rise to 55.5.
News and Data for the Pound
The main releases for the Pound in the week ahead will be September Purchasing Manager Survey data which will give us insights into the health of the manufacturing, constructing and service sectors for the month of September.
"Next week’s PMI reports will be exceptionally important. If manufacturing, service and construction activity accelerates, it would validate the BoE’s calls for tightening and reinvigorate the rise in Pound Sterling. However, if manufacturing- and/or service-sector activity slows, it would cast doubt on the central bank’s plans and cause the currency to give up some of the gains that it enjoyed in September against the dollar and the euro," says Kathy Lien, Director at BK Asset Management.
The first release is Manufacturing PMI on Monday at 9.30 BST, which is forecast to show a slowdown to 56.4 from 56.9 in the previous month of August.
Construction PMI is out at the same time on Tuesday and is forecast to show a slowdown to 50.8 from 51.1.
Finally, Services PMI is out at 9.30 on Wednesday and is forecast to remain unchanged at 53.2.
Politics will also be in focus with the Conservative party conference taking place in the first-half of the week.
However, it will be Prime Minister Theresa May's speech on Wednesday that has the most market-moving potential as she is expected to touch on the issue of Brexit.
May's speech on the issue of Brexit delivered in Florence on September 22 was widely credited with giving Brexit negotiations a fresh impetus with the outcome of the fourth round of negotiations showing fresh progress.
However, there is still much progress to be done and markets will be interesting if May is willing to deliver further clarity.
Furthermore, there are concerns May's position is in jeopardy with persistent talk of senior figures within the Conservative party willing to challenge her for leadership of the party.
“We think the risk/reward of being long GBP is not attractive and prefer selling into rallies,” says Hans Redeker at Morgan Stanley. “The Conservative Party Conference in the coming week (begins at weekend) also poses a risk event, where signs of a split within the Tory Party may weigh on GBP as it raises concerns about PM May's leadership.”
It goes without saying that any successful challenge opens up the door to fresh uncertainty. If a new Prime Minister were to be installed over coming weeks or months the pressure for another general election mounts.
If there is one thing the Pound detests, it is is uncertainty.
