GBP/USD lost ground last week as the Dollar rose on the increasing likelihood the Federal Reserve will raise interest rates in March thus stimulating foreign capital inflows.
The Pound meanwhile declined on fresh concerns the Scottish will want a second referendum on independence due to the majority of them not voting for Brexit.
From a technical point of view, the pair is sat at a crossroads.
It is right on a tough level of support provided by a major trendline drawn from the October lows, at 1.2212.
The big question now is whether it will rebound off this trendline or pierce right through it?
Given the previous week’s trend was down and is more likely to continue then arrest there is a marginal bias to a continuation lower.
We would want to see a clear break below the 1.2200 level, however, for confirmation of further downside, to a target at 1.2000, calculated by taking the length of the move before the trendline break (X on the chart below) and extrapolating it below the break (Y).
MACD is poking below the zero-line which is also supporting a more bearish outlook.
The pair is also now below its 50 and 200-day moving averages, a further negative sign.
Data for the Dollar in the Week Ending Mar 10
The main release for the US Dollar will be Non-Farm Payrolls at 13.30 GMT on Friday, March 10.The consensus expectation is for 190k but investment bank TD Securities actually see this as slightly cautious, expecting a 205k result instead.
An above 200k forecast would send the Dollar higher as it would solidify March rate increase hopes from the Federal Reserve.
TD see the Unemployment rate falling from 4.8% to 4.7% in line with expectations.
The other main theme for the Dollar are rising market expectations the Fed will increase interest rates at their March 15 meeting.
Such a move would boost the Dollar by attracting my foreign capital to the US seeking higher interest returns.
Data for Sterling
Not much top tier data for the Pound in the week ahead, but on Tuesday, March 7 there is the release of tier two data in the form of the Retail Sales Monitor from the British Retail Consortium (BRC).It is a survey rather than a hard data release but sentiment indicators are still often quite reliable indicators of future activity.
The monitor, out at 00.01 (GMT) is expected to show a 0.2% rise in February from the -0.6% decline in Jan.
Overall recent UK data has been described as soft, and this combined with the resurfacing of fresh Brexit risks relating to calls for a Scottish referendum are have been weighing on Sterling.
Whilst the cost to England of a Scottish break off have not yet been estimated by analysts there is an argument to say they may be roughly balanced with the gains, since Scotland enjoys a disproportionate slice of the budget for its size.
Nevertheless, currently the market is of the opinion that the related uncertainty caused by Scotland is negative for Sterling so more losses may be on the horizon as the narrative unfolds.
“Sterling fell hard this week as data took a turn for the worse. After a month of very narrow trading ranges, sterling finally broke down on the heels of softer data.
Aside from slower service-sector activity, manufacturing activity also eased in February and between the stronger U.S. dollar, Scotland pushing for another referendum vote and Brexit's Article 50 later this month, it was only a matter of time before the bottom underneath sterling fell out. Now that support has been broken, we anticipate further losses in GBP,” commented Managing Director of BK Asset Management, Kathy Lien in a recent note seen by PSL.
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