GBP/USD is showing some trend reversal signals, both in the fundamental and technical aspect. For one, the pair is finding difficulty sustaining its bounce from the long-term rising trend line on the daily and 4-hour charts. This might mean that a breakdown is about to happen soon, but traders are still waiting for the right market catalyst for this to happen.
The upcoming non-farm payrolls release from the US economy could be the catalyst that the pair needs to confirm these trend reversal signals. An increase of 200K in hiring is expected, higher than the previous 175K in employment and enough to push the US jobless rate down from 6.7% to 6.6%. This would put it closer to the Fed’s previous 6.5% target level during which they would start considering hiking interest rates.
Fundamental Trend Reversal Signals
As for the UK economy itself, the latest PMI (purchasing manager index) reports have all been weaker than expected. This led some analysts to mention that the UK economy has already peaked and that slower growth is to be expected.
The manufacturing PMI released early in the week showed a slower than expected expansion in the industry and so did the construction PMI. The services PMI printed a decline and this comprises a huge chunk of the UK economic activity, leading traders to price in a weaker GDP reading for the previous quarter.
However, what’s keeping the pound afloat these days is the speech by BOE Governor Carney. He said that the central bank is looking to hike interest rates prior to the general elections happening in the UK. This means a higher rate of return for holding British assets, which would then drive up demand for the British pound.
A stronger than expected reading for the US NFP would put the Fed as a hawkish central bank as well though, which might lead to more dollar gains in the near term and a confirmation of the trend reversal signals for GBP/USD.
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