Currency Markets Prepare for a Jam-Packed Week
Volatility Guaranteed: Possible BoE Rate Hike, ECB Press Conference, and U.S. NFP
by Bogdan Giulvezan
The greenback is flexing its muscles, as the US Dollar Index (DXY) posted a 1.6% upsurge last week, which was the largest weekly climb since mid-2021. The DXY is currently trading at levels that were last seen in mid-2020 and the dollar made serious advances against most of its counterparts, not just the 6 currencies used for the DXY calculation.
On Monday morning the USD gave back some of its gains but remains on the upside and the week ahead is filled with market-moving events, meaning that volatility is almost a certainty during the next 5 trading days.
Key Events for the Week Ahead
Tuesday at 3:00 pm GMT, the Institute for Supply Management (ISM) will announce the Manufacturing PMI, which is a survey that acts as a leading indicator of economic health, focused of course on the manufacturing sector. The indicator usually strengthens the USD if it exceeds the forecast, which for this release is 57.4 (previous 58.7).
The next highlight comes Wednesday at 1:15 pm GMT in the form of the ADP Non-Farm Employment Change. The report shows the estimated change in the number of employed people, excluding the government and the farming sector, and tries to mimic the more important NFP report that comes out later in the week. The forecast is 210K, a big drop from the previous 807K.
Thursday, it’s GBP’s time to shine as the Bank of England is expected to hike the interest rate from the current 0.25% to 0.50%. The Monetary Policy Report and the Official Bank Rate come out at 12:00 pm GMT, followed half an hour later by a press conference held by BoE Governor Andrew Bailey.
The ECB will also announce the rate and will hold a press conference but no major changes are expected. Later in the day, the ISM Services PMI comes out, affecting the US Dollar; considering this cluster of events, Thursday will probably be a rollercoaster, at least for these three currencies.
The main event for the US Dollar will be the release of the Non-Farm Payrolls report, scheduled for Friday at 1:30 pm GMT. The anticipated change is 166K (previous 199K) and a higher number usually strengthens the greenback. Keep an eye on the Average Hourly Earnings and Unemployment Rate, both released at the same time as the NFP.
Technical Outlook – GBP/USD
After bouncing at the confluence zone created by 1.3700 horizontal resistance and the bearish trend line seen on the Daily chart below, the pair moved straight into the support zone created by 1.3360, without any sort of hindrance.
Thus far it looks like GBP/USD is moving with momentum but it is very “obedient” when it comes to S/R levels, which suggests that we may see a bullish bounce at the current levels. The overall trend is bearish (the pair is making lower highs and lower lows), so we are likely to see a break of 1.3360 after a bullish pullback. Of course, the week ahead is stacked with key releases that will somewhat overshadow the technical side.
