GBP/USD: Cable Tumbles on Higher-than-Expected NFP Data

Sterling took a pounding today as NFP numbers showed an unexpected jump in new jobs. The current bullish leg may be over at this point.

U.S. NFP data showed the economy added 272k new jobs, while forecasts had predicted an additional 185k. This type of number indicates a healthy and expanding economy. In other words, the Fed may be reluctant to start cutting rates anytime soon.

Cable took a dive immediately after the news, losing 70 pips in the first 20 minutes after the release of the data. Concerns are twofold at this point. The BoE me be getting closer to cutting rates and the Fed looks like it’s further away.

The widening interest rate differential will favor the dollar and push cable lower. We may see some strength in the pound next week, we’re expecting employment data on Monday and GDP data on Tuesday.

That might be short lived, as on Wednesday we get U.S. inflation data, which is expected to decline to 3.5% from 3.6%. So, if that expectation isn’t met I would expect to see further lows in cable.

Technical View

The day chart for GBP/USD shows a bullish leg going from a low on Aril 22 of 1.2300, to a recent high today of 1.2821. This last surge today, before the NFP data, may well be the last of this recent rally.

The market has been trading sideways since the end of 2023. We have wider top and bottom limits set by the black and orange lines, 1.2894 and 1.2300 respectively. And a tighter range set by the green and red line.

Most of the candles are within the green and red lines with a break above, which set the current topside limit (black line), and a dip below which set the low limit (orange line). This last bullish leg hit the green line and failed to break higher on 5 attempts.

I would say we can expect the market to continue lower now. The next support is the 0.236 Fibonacci line at 1.2698, which coincides with strong support from several candle bodies in May.

If that breaks when can expect the next support at the 0.382 Fibo line at 1.2622.

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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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