No Hope In Sight For Sluggish Dollar

Sluggish Price Action Ahead of Non-Farm Payrolls and BOE Monetary Reports

Generally speaking, GBP/USD has been stuck inside an ascending channel since the start of October 2020 but lately, the pair’s movement has been choppy, and upwards momentum is starting to fade. Several attempts to break 1.3700 resistance have been made but thus far, they have all resulted in moves lower or choppy price action, without clear direction.

The events scheduled this week will probably give us an answer regarding the pair’s next medium-term direction, considering that we have major releases on the table, for both currencies in the pair.

Key Events for the Week Ahead

Monday, February 1 at 3:00 pm GMT, the Institute for Supply Management (ISM) will release the U.S. Manufacturing PMI, which is a survey derived from the opinions of about 300 purchasing managers, regarding business conditions. It usually acts as a leading indicator of economic health, with levels above 50 indicating optimism. The previous reading was 60.7 and the forecast for today’s release is 60.0.

Thursday, February 4 at 12:00 pm GMT, the Bank of England will release a cluster of important data. The Monetary Policy Summary contains the interest rate votes as well as the reasons that determined them, but more importantly, it may contain clues about BOE’s next rate move. The Monetary Policy Report contains BOE’s inflation and economic projections for the next 2 years. This report will also be discussed during a press conference that will be held by Governor Bailey soon after its release. The rate is not expected to change from the current 0.10% and the votes are all expected to remain in favour of keeping the rate unchanged; however, all these releases are likely to have a notable effect on the Pound.

Friday, February 5 at 1:30 pm GMT, the attention shifts to the other side of the pond for the release of the U.S. Non-Farm Employment Change (aka Non-Farm Payrolls), which is widely considered the most important U.S. jobs data. The report shows changes in the number of employed people, excluding the farming sector, and usually has a strong impact on the US Dollar, with higher than expected numbers strengthening the currency. The estimated change is 55K, which would be a big jump from last month’s negative change of -140K. At the same time, the Unemployment Rate and Average Hourly Earnings come out, which are important indicators that help round out the employment picture in the U.S.

Chart Analysis – GBP/USD

The pair is currently trading at 1.3720 but the upwards momentum is flattening and the resistance at 1.3700 seems to be too strong for the bulls. Unless we see a clear and strong breakout soon, the pair is likely to return below the level and the chances of a bearish breakout will increase.

If the ascending channel is broken to the downside, we can expect to see a move closer to 1.3500, which may extend into the 1.3400 area. Both the MACD and RSI are almost flat, indicating a lack of momentum (an idea supported also by the small candles), thus the fundamental side of trading will probably take center stage this week.