Key Points:
- Cable likely to be impacted by NFP result.
- Market struggling for data points ahead of FOMC meeting.
- Watch for volatility around the US NFP and UK NIESR GDP results.
The cable had a relatively torrid week as the pair reacted to the ongoing hawkish rhetoric from various US Federal Reserve members. This saw a sharp dollar rally early in the week, and largely overshadowed solid gains in the UK Nationwide HPI and Manufacturing PMI figures, before a late session dollar pullback gave the pair a much needed respite. Subsequently, it remains to be seen if the cable will continue to decline in the coming week. It therefore makes sense to review last week’s machinations with a view to seeing what could be potentially looming on the horizon.
Last week was highly negative for the cable as the pair declined sharply following a range of hawkish rhetoric from US FOMC members. It would appear that the central bank is attempting to strongly prepare the market for a March rate hike with most members now suggesting tightening is on the cards.
This largely rendered the stronger UK data moot despite the UK Nationwide HIP and Service PMI growing at 0.6%, and 53.3, respectively. However, the cable managed to find a bottom around the 1.22 handle following a dollar selloff late in the week which saw the pair close around the 1.2289 mark.
Looking ahead, the coming week will be a volatile one for the embattled cable given that the UK NIESR GDP Estimate and US NFP figures are due out. The GDP estimates are likely to fall around the 0.6% mark, for the quarter, which isn’t an altogether bad result considering the ongoing uncertainty around a Brexit.
However, the market’s major focus is likely to fall on the NFP numbers given the looming rate hike meeting. The estimates put the result around the 190k mark but it will need to be robust indeed with speculators looking for a solid result to stump up the argument for near term rate hikes from the Fed. Ultimately, regardless of the results, the cable faces a critical choice on trend direction and is likely to swing strongly in the week ahead.
From a technical perspective, our initial bias for the week ahead remains neutral given that the pair will need to hold above 1.2213 to signal the end of the recent breakdown. However, there is some encouraging signals from the RSI Oscillator given that it is relatively close to oversold levels and appears to have flattened.
The bias remains cautiously neutral but with the caveat to watch for a challenge of 1.2382 as a break of this level would signal a sharp rally to come. Support is currently in place for the pair at 1.2213, 1.2120, and 1.1987. Resistance exists on the upside at 1.2382, 1.2512, and 1.2567.
Ultimately, the cable is likely to demonstrate some sideways action over the next few days but the NFP and NIESR GDP releases are likely to kick the pair’s volatility up a notch. Subsequently, watch for plenty of swings in the latter part of the week and a potential test of the key 1.2380 resistance level.