In May, GBP/USD slid 300 pips from 1.70 to 1.67 (charts below). The first week of June will provide more fundamental releases than last week. Here are the key releases to monitor for the sterling-us dollar pair.
Manufacturing PMI (May) forecast: 57.1, previous: 57.3. Expectations seem to be flatter for May, but the general trend has been improving in UK manufacturing PMI.
ISM Manufacturing PMI (May) forecast 55.7, previous: 54.9 US manufacturing was seen to have slipped a little at the start of the year, but a recovery to 55.7 will make it the highest reading this year and a slightly higher reading can have at least some short-term bullish impact on the USD. A readying above last year’s peak of 57.3 (for November) would be a very meaningful sign of economic recovery in good pace, and would help strengthen the USD.
Nationwide HPI m/m (May) forecast: 0.7%, previous 1.2% The Home Price Index was surprisingly high in April (1.2% vs. 0.6% forecast). This month, 0.7% is the forecast.
Construction PMI (May) forecast: 61.2, previous: 60.8 The growth in construction decelerated in April with a PMI reading of 60.8. May’s reading is expected to improve, but is still down from January’s 64.6 (which is the highest since Aug. 2007).
USD: Factory Orders m/m (April) forecast: 0.6%, previous 1.1% Factory orders in April is expected to grow, but at a slower pace then the previous month. February and January’s orders declined (-0.7% and -1.5% respectively). It has since improved, but it looks like April’s data is not expected to impress.
Services PMI (May) forecast: 58.3, previous: 58.6 UK’s services PMI peaked at a multi-year high of 62.5 for the month of October, 2013. It has since hung around 58.
ADP Non-Farm Employment Change (May) forecast: 217K, previous 220K After a couple of mad months in January and February, the US economy seems to be adding jobs faster. If we continue to get 200K+ jobs added each month, the pace of recovery in the jobs market should hint at a 2015 rate hike sooner rather than later.
GBP: Bank of England Monetary Policy Statement – The expectation is for the bank to maintain its QE, or asset purchase at 375 billion pounds, the amount it has maintained for 2 years. The benchmark interest rate is also expected to stay at 0.50%. Just like the FOMC, the MPC is forecast to raise rates in 2015.
Jobless Claims, forecast: 314K, previous week: 300K If jobless claims can start showing under 300K readings, the FOMC and the markets will take notice.
Friday: USD: Non-Farm Payroll (May) forecast: 219K, previous: 288K Unemployment Rate (May) forecast: 6.4%, previous 6.3% The main fundamental risks for GBP/USD will be the BoE Monetary Policy Statement and Friday’s Non-Farm Payroll. Economists forecast about 219K jobs added in May, which is down from the 288K reported in April. Still if we can stay above 200K a couple more months, the FOMC will likely consider raising rates sooner rather than later in 2015. The unemployment rate is not as significant these days, especially when it does drop. The caveat has always been the historic low in participation rate. Either way the FOMC is no longer using a specific unemployment rate number to guide its rate hike consideration. The jobless rate is expected to edge higher from 6.3% to 6.4%, but don’t be too alarmed but the headline reading. If participation rate improves this month, the increase in jobless rate should not be a concern.
GBP/USD Daily Chart
When you look at the daily chart above, you first notice the bullish mode of the market, at least in 2014. The moving averages (200,100,50) are in bullish alignment, and price has traded above them for the most part. You also notice that the largest bearish corrections in 2014 have all been limited to around 300 pips.
The daily RSI reading has been able to tag 70, but has for the most part held above 40. This is another reflection of a persistent bullish market in the daily chart. Given the bullish mode in 2014, I can see at least some short-term bullish attempt from the 1.67 handle, with a likelihood of continuing the trend and at least challenging the 1.69, and 1.70 areas which provided resistance in May.
I think the 1.6660-1.67 area will be key this week. If the market is to maintain its trend and momentum it had so far in 2014, the market should find support after May’s ABC correction.
The 61.8% retracement is at 1.6662 and should provide support if the market is bullish. A return above 1.6850 would be a bullish signal. However, if price stays south of 1.6650 after the week is said and done, we should anticipate May’s bearish correction to continue in June.
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Earlier: EUR/USD Trading Between 1.36 and the 200-day SMA