The Pound Sterling continues to wallow in the gutter against the US Dollar, now at 1.3416. This decline comes as the US Dollar gains strength ahead of the highly anticipated Nonfarm Payrolls (NFP) report for December. Market analysts across the country are eagerly watching this data. They’re worried about the distortions caused by this year’s longest government shutdown in history over the last several months. The next report will be super important to traders. Behind that is a great desire to measure the health of the US labor market.
Currently, the US Dollar Index (DXY) is up 0.17%. It’s been a little above 99.00 all morning, hitting its highest level in four weeks. The GBP/USD currency pair is now under noticeable downward pressure. It is now backtesting the 20-day Exponential Moving Average (EMA) from underneath, which is at 1.3439 today. The pair’s Relative Strength Index (RSI) is currently at 50, signaling a neutral market sentiment.
Market Dynamics and Labor Data Influence
During the Friday European trading hours, the Pound Sterling showed a lackluster performance against its major currency peers. Shifting focus to the UK, traders have an eye on the UK labor market data, which includes the three months through November. This report will be especially important in setting the stage for BoE monetary policy decision making in the full period ahead.
The NFP report is easily one of the most important economic indicators to forex traders. Additionally, for December, the US economy created only 60,000 net new jobs (down from 64,000 in November). In addition, the unemployment rate fell to 4.5%, a decrease from 4.6% last month. These numbers could have big ramifications for the US Dollar, and GBP/USD trading in general.
Market participants are understandably on edge as next week’s UK labor data may, once again, change the market’s mind on the BoE’s likely path. Analysts have forecast labor statistics that would increase expectations of a more hawkish central bank. Such a shift would be detrimental to the Pound’s prospects against its rivals.
Technical Analysis and Key Levels
Let’s take a look at the technical landscape for GBP/USD to uncover some key levels traders should keep an eye on. The previous high was 1.3791 and the low fell all the way down to 1.3012. Collectively, these figures form an important Fibonacci retracement zone, with the 50% level set at 1.3402. This region is viewed as an adjacent potential pivot zone for the currency pair.
A recovery above 1.3402 presents a solid bullish reversal cue. Such a move would bring us close to important areas of resistance, particularly within the vicinity of the psychologically-important figure of 1.3600. If we don’t hold above this important support level, then we risk seeing even further drops. This would drive GBP/USD lower and potentially test or break historical lows.
Speculation traders are highly cautioned to watch US economic data closely as well as data regarding the UK labor market. The interaction between these three factors will be a major influence in determining bullish or bearish market action over the next few days. Look for wild swings on each currency as a result.
Outlook for GBP/USD and Market Sentiment
As markets shift focus to forthcoming economic reports, analysts expect that the Pound Sterling may remain on the sidelines in anticipation of fresh data releases. This environment further emphasizes the correlation between economic indicators and trader sentiment internationally.
Those next labor market figures in the UK will have a huge effect on how the public perceives the economy. They will be important in setting out the scope of future monetary policy from the Bank of England. In this context, traders should be prepared for possible adjustments in their strategies based on the outcomes of these important economic releases.