The GBP/USD exchange rate has slipped to 1.2293 at the start of the new year amidst shallow trading conditions.
The year gets underway in proper fashion on Tuesday and until then we are wary of reading too much into current moves.
The British Pound been in a short-term downtrend against the Dollar for much of December, but there are growing signs this may now have bottomed at the 1.2197 December 28 lows.
Since the December 28 lows, the pair has started climbing again, reaching a high of 1.2389 on December 29:
The recovery looks steep when seen on the 4-hr chart below, which is in itself a bullish sign.
Peak and trough progression has reversed and started to rise, indicating a chance the short-term trend may be reversing and turning up.
A break above the spike highs at 1.2389, would indicate a continuation of this nascent uptrend to a likely next target at 1.2425, where the 50-day Moving Average (MA) is situated.
The MACD indicator which measures momentum, has risen above the zero-line indicating the trend is probably now up.
The Pound has lost ground over the yuletide due to a resurfacing of 'harder Brexit' talk amongst government ministers.
The general perception amongst analysts exemplified in the outlook from FXprimus’ Marshall Gittler – an old hand at currency analysis – is that the Pound will likely soften again after article 50 is actually triggered from concerns the economy will start to tank after the actual ‘divorce’.
This and the spectre of rising inflation contracting household budgets are the twin themes haunting sterling, and any mention of Brexit in the first week of January is likely to impact.
There is also the possibility of news of the decision of the Constitutional Court.
If it is in favour of parliamentary input that will strengthen sterling based on expectations of a softer Brexit.
This decision is expected sometime in January.
The Dollar’s main release in the coming week is Non-Farm Payrolls (NFP’s) data, which is expected to remain about the same, however, analysts are turning their attention to other metrics now the employment problem appears to have been ‘solved’.
Of more interest to the market are the Average Earnings data released at the same time as NFP’s.
This showed a -0.1% contraction in November, and any further falls will be detrimental for the Dollar as it will signal higher inflation, consumer appetite and confidence, in general, are still constrained.
Data for the Dollar
As already mention, the main release for the Dollar in the week ahead is Non-Farm Payrolls (NFPs) released at 13.30 (GMT) on Friday, January 6, which are forecast to show a slight dip to 175k from 178k previously.
Any result above the 170 mark is likely to support the Dollar as it will show continued strength in the already strong labour market.
Average Hourly Earnings are released at the same time as NFPs and will probably attract a lot of attention.
Last month they contracted surprisingly by -0.1% but in December they are expected to rise by 0.3%.
A further contraction, however, will result in a pull-back for the Dollar.
ISM Manufacturing is released at 15.00 (GMT)on Tuesday, January 3, and is expected to rise to 53.5 from 53.2 previously.
Markit Manufacturing PMI is also released on Tuesday at 14.45.
A big release is the FOMC minutes on Wednesday at 19.00.
ISM Non-Manufacturing, is released at 15.00 on Wednesday, January 4 as well.
Data for the Pound
The main data releases for this week are Manufacturing, Services and Construction PMIs for December.
The week starts with Manufacturing PMI on Tuesday, January 3 at 9.30, which is forecast to pull-back a basis point to 53.3.
Construction PMI follows on Wednesday, January 4, and is forecast to rise to 53.0 from 52.8.
Services is out on Thursday, January 5, and is forecast to pull-back to 54.7 from 55.2.
Bank of England’s (BOE’s) Andy Haldane is speaking on Thursday 5.
Lending and Consumer Credit data is out on Wednesday the 4th.