GBP/USD could offer traders one of the cleaner opportunities around today’s US employment report, with the numbers likely to have a significant impact on Fed rate expectations and, consequently, the US dollar.
The market is looking for nonfarm payrolls to rise by around 90k in September, down sharply from August’s 162,000 increase. The Unemployment Rate is expected to remain at 4.1%, while average hourly earnings are forecast to rise 0.3% month-on-month.
The key for Cable is that Fed expectations have shifted substantially over the past few sessions. Softer US inflation data and more cautious comments from Fed officials have seen the probability of another October hike fall to around 38%, from more than 70% only a week ago.
That leaves the dollar vulnerable to a significant repricing if the jobs numbers surprise.
A strong payroll print, particularly north of 120k, could quickly bring an October Fed hike back into play. US yields would likely push higher, and the dollar should find fresh buyers – at already elevated levels, creating an opportunity to sell GBP/USD on a break lower.
Conversely, a weaker number, particularly payrolls below 50k combined with unemployment ticking higher, could further reduce expectations for an October move. That should weigh on US yields and the dollar and potentially provide the catalyst for a GBP/USD move higher.
Cable is now sitting just above technical support on the Daily chart and is not far off the annual low of 1.3137 and a stronger number should provide good break trade opportunity for sterling bears, while a weaker print should allow bulls to leverage off those levels to enter long positions for a move higher.
Resistance 2: 1.3629 – Long Term Trendline Resistance
Resistance 1: 1.3443 – 200 Day Moving Average and Trendline Resistance
Support 1: 1.3177 – Trendline Support and Overnight Low
Support 2: 1.3137 – 2026 Low
