May 06

GBP/USD edges higher toward 1.2600

Following Friday's volatile action, GBP/USD pushes higher toward 1.2600 on Monday. Soft April jobs report from the US and the modest improvement seen in risk mood make it difficult for the US Dollar to gather strength.

Technical Overview

After spiking above 1.2600 on Friday, GBP/USD erased a large portion of its daily gains and closed the week near 1.2550, where the 200-day Simple Moving Average (SMA) is located. In case the pair makes a daily close above that level and starts using it as support, buyers could remain interested. In this scenario, 1.2600 (Fibonacci 50% retracement of the latest downtrend) could be seen as next resistance before 1.2665 (Fibonacci 61.8% retracement) and 1.2700 (psychological level, static level).

If GBP/USD fails to flip 1.2550 into support, sellers could take action. In this case, supports could be seen at 1.2500 (psychological level, static level), 1.2470 (100-period SMA on the 4-hour chart) and 1.2445 (Fibonacci 23.6% retracement).


Fundamental Overview

GBP/USD closed the previous week marginally higher and seems to have stabilized at around 1.2550 to start the new week. The pair needs to confirm 1.2550 as support to continue to push higher in the near term.

The US Dollar (USD) came under heavy selling pressure in the early American session on Friday with the immediate reaction to disappointing data releases for April. Heading into the weekend, however, hawkish comments from Federal Reserve (Fed) officials helped the currency erase its losses and forced GBP/USD to retrace its daily rally.

The US Bureau of Labor Statistics reported that the Unemployment Rate edged higher to 3.9% in April from 3.8% in March. In the same period, Nonfarm Payrolls (NFP) rose 175,000, missing the market expectation of 243,000 by a wide margin. Other data from the US showed that the ISM Services PMI dropped into contraction territory at 49.4 in April from 51.4.

Chicago Fed President Austan Goolsbee downplayed the weak labor market data on Friday and said that current numbers were solid. Later in the day, Fed Board of Governors member Michelle W. Bowman noted that she would be willing to raise rates further if data shows inflation progress has stalled or reversed.

The economic calendar will not offer high-impact data releases on Monday. Hence, the risk perception could impact the USD's valuation and GBP/USD's action later in the day. After trading mixed in the Asian session, US stock index futures turned positive on the day in the early European session. A bullish opening in Wall Street could support GBP/USD during the American trading hours.

On Thursday, the Bank of England will announce monetary policy decisions.