NFP Outcome Will Seal The Dollar’s Fate

Dear Traders,

The BoE’s Super Thursday is behind us and we got what we were looking for: A breakout in GBP/USD. Our forecast of further bearish momentum toward 1.3110 following a break below 1.3190 proved to be correct. Thus, sterling bears were able to pocket a nice gain yesterday. What prompted the pound to decline? The Bank of England’s monetary policy committee voted 6-2 to keep interest rates unchanged but more importantly, policy makers lowered their economic growth projections to 1.7 from 1.9 percent. Furthermore, the BoE cut its forecast for wage growth for 2018 and 2019. The market was betting on a surprise hawkishness but what it got was some uncertainty when Carney expressed concerns about a “smooth transition to a new economic relationship with the EU”. While he also pointed towards some tightening in the next three years, yesterday’s policy statement was interpreted as negative.

The euro favored the upward movement after correcting towards 1.1830. Based on the recent uptrend we generally expect further gains towards 1.1960 and 1.20. A break below 1.1850 however, could send the euro towards its lower support at 1.18.

The pound now faces a crucial support at around 1.31. A significant break below that barrier may result in further bearish momentum towards 1.30.

All eyes will be on the U.S. employment report scheduled for release today at 12:30 UTC. Market participants hope that the NFP report will provide clues on the strength of the U.S. economy and the Fed’s next policy move. So the U.S. Dollar’s fate will depend on the NFP outcome. Let’s be surprised.

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