Key Points:
- Cable downtrend remains in play.
- Employer hiring expectations slip.
- Cable outlook remains bearish.
Last week saw the Cable experiencing a sharply negative move as a confluence of sentiment swings and poor economic data impacted the pair. In particular, the UK NIESR GDP estimate came in well below forecasts at 0.3% q/q (0.6% prev) whilst the venerable institute also predicted a 50% chance of recession for the UK in the next 18 months. Subsequently, despite the fall in greenback strength, the pair failed to benefit and ended up closing below the key 1.30 handle at 1.2906.
The week ahead is likely to be relatively busy for the Cable as the UK CPI and Claimant Count figures are due out. The CPI figure is forecast to remain steady at 0.5% y/y but the jobless claims could prove the pair’s undoing as they are estimated to rise to 9.5k (0.4k prev). A weak UK labour market result, coupled with some potentially strong US Core CPI data, could see the Cable moving below the 1.29 handle from a fundamental point of view. Subsequently, monitor these economic results closely as they are likely to provide plenty of volatility.
In addition, the latest statistics from CIPD also seem to suggest that there is a hit on the way for UK employment with the proportion of UK employers looking to hire over the next three months having declined to 36%. Given the strong role that employer economic expectations play in hiring decision it is no surprise that the labour market is slowing post Brexit. This may also impact the retail spending channel and plays into the broader sentiment of economic weakness currently exhibited in the Cable’s exchange rate.
From a technical perspective, the choppy fall from the 1.3480 high continues to progress and initial bias this week remains to the downside. Price action is likely to remain under pressure with the downtrend towards the 1.2794 low to remain in focus. In addition, the RSI Oscillator is still unwinding within neutral territory but it should be noted that it is approaching oversold status on the daily timeframe. Ultimately, the pair is likely to remain under pressure until a break above 1.3093 occurs. Support is currently in place for the pair at 1.2848, and 1.2794. Resistance exists on the upside at 1.3373 and 1.3486.
Ultimately, the pair is likely facing a rough couple of weeks as the both the technical and fundamental factors suggest that the bearish moves are not yet finished. However, it is unlikely that we will see the 1.2794 support point under a serious challenge unless another fundamental or technical shock becomes apparent.