Dollar Traders Brace For NFP Report

Will NFP Fall in Line With Expectations or Are We in for Another Shock?

by Bogdan Giulvezan

To say that the US Dollar did not have a good May would be an understatement. It lost ground against most of its major counterparts but especially against the British Pound, as GBP/USD is currently trading at 1.4180, on the last day of the month. It’s a huge gap, considering that it was trading around 1.3800 at the beginning of May.

The pair is banging on the door of key resistance at 1.4200 and the week ahead is filled with important economic releases, which have the potential to be real market-movers, thus we are likely to get an answer regarding the greenback’s next direction.

Key Releases for the Week Ahead

Today, US banks will be closed in observance of Memorial Day, and British banks will be closed, celebrating Spring Bank Holiday. This will probably translate into a slow day, without major moves on the chart.

The first notable release of the week is scheduled for Tuesday, June 1 at 2:00 pm GMT: the U.S. Manufacturing PMI. This is an index derived from the opinions of purchasing managers from the Manufacturing industry, regarding overall business conditions in the sector. It acts as a leading indicator of economic health and usually, it has a sturdy impact on the US Dollar. The forecast is 61.2, a small increase from the previous 60.7.

Thursday, June 3 at 2:00 pm GMT the U.S. Services PMI will be released. It is similar to the index mentioned earlier but of course, it’s focused on the Services sector. The expected number is 63.0, while the previous was 62.7.

The main event of the week is without a doubt the release of the Non-Farm Payrolls report, which shows how many new jobs were created during the previous month. It will come out Friday, June 4 at 12:30 pm GMT and it’s expected to show 670K new jobs.

However, last month’s NFP was expected to show 990K jobs and the actual number was only 266K, which shows that we cannot trust any estimates and it’s better to wait for the actual number before making a trading move. Generally, a higher number (compared to the forecast), adds strength to the US Dollar because a larger number of employed people is indicative of increased consumer spending, which is a major part of the entire economic activity.

Technical Outlook – GBP/USD

The pair is once again testing the resistance at 1.4200 and depending on the timeframe we’re looking at it, we can say this is a double or a triple top, which are bearish patterns. Price is supported by a bullish trend line but the movement is sluggish and without momentum, thus there’s a distinct possibility to see rejection at current levels.

If the bulls fail to take price above 1.4200, the most probable scenario is a drop into 1.4000 support, followed by 1.3700 in the longer term. On the other hand, a break of the current level would open the door for a new leg of the uptrend but a lot will depend on the economic data released this week, especially the U.S. Non-Farm Payrolls, so it would be wise to wait until the actual numbers come out.