The GBP/USD pair continues to be under pressure, showing a downward trend for the fourth day in a row. Last Friday, the pair updated the local three-week high of 1.3891, approaching the level of 1.39. The upward surge was due to disappointing Nonfarms, which reflected a weak increase in the number of people employed in the non-agricultural sector. But despite the general weakening of the US dollar, the buyers of GBP/USD did not dare to break through the resistance level of 1.3900. As a result, the moment was lost, the upward momentum disappeared by Monday and the pair began to gradually fall.
In general, the US currency is strengthening its positions this week. The US dollar index has been slowly rising for the last four days: the indicator reached 92.75 today after rebounding from the base of the 92nd mark, reflecting investor demand for dollars. Dollar pairs behave accordingly, and the GBP/USD is no exception. The pound pulled back from the local high (1.3891) by more than 200 points.
The main support for the US dollar was provided by the Fed representatives' "hawkish" comments amid the controversial Nonfarm data. Thus, the CEO of the Federal Reserve Bank of St. Louis, James Bullard, announced again that the regulator should weaken the volume of fiscal stimulus. According to Bullard, the so-called tapering will begin this year and end in the first half of next year. Bullard did not dramatize the situation surrounding the latest release in the US labor market. In his opinion, the number of jobs in the US will continue to grow despite the temporary decline, amid an improvement in the epidemiological situation. This will allow the Fed to maintain its course towards tightening its monetary policy.
The data published yesterday on the number of open vacancies and turnover in the US seemed to confirm the optimism of the head of the Federal Reserve Bank of St. Louis. The release from the Bureau of Labor Statistics (JOLTs Job Openings) is considered minor, but at the same time, it shows more real-time data. This indicator measures the level of open vacancies among the private sector at the end of the reporting month, adjusted for seasonal factors. So, the JOLTS report says that the American labor market is in a fairly strong form, so the decline in Nonfarms may be temporary. In particular, the number of open vacancies in July was a record (10 million 900 thousand). The number of unemployed people per open workplace decreased to 0.79 (from the previous value of 0.93). In other words, the demand for American labor remains quite high, and this fact suggests that the next Nonfarm will be stronger than the August ones.
John Williams, who is another Fed representative and the head of New York, also voiced hawkish words yesterday. Just like Bullard, he announced that the reduction in asset purchases should begin this year. In his opinion, the inflation standard is clearly met, but the regulator needs further progress in the labor market to achieve the Fed's target of maximum employment.
It should be noted that both Bullard and Williams outlined the timing of the beginning of the curtailment of QE quite abstractly – "this year". Given the fact that there are three Fed meetings left until the end of the year (in September, November, and December), it can be assumed that the US regulator will announce a corresponding decision at the November or December meeting. Apparently, dollar bulls have come to terms with this state of affairs – the very fact that the Fed will take the first step towards normalizing monetary policy in the coming months supports the US dollar, which is cautiously strengthening its positions throughout the market.
In turn, the pound is under the pressure from its problems, including those of a political nature. So, a scandal broke out in Britain this week after Prime Minister Boris Johnson announced an increase in the social security tax by 1.25% from April next year. The very fact of introducing a new tax violates the election promises spelled out in the manifesto of the Conservative Party. In this regard, Johnson was subjected to a barrage of criticism, including from conservatives. According to the opponents of the head of government, with the introduction of a new tax, the tax burden of Britons becomes "the heaviest for all the post-war time", and the ruling Conservative party risks losing part of the electorate. This scandal has supplemented the corresponding picture of a fundamental nature. At the same time, the pound is also under the background pressure of the "Scottish question" and the unresolved question regarding the fate of the Northern Ireland Protocol.
Tomorrow's release may also increase the pressure on the GBP/USD pair. We will find out the latest data on the growth of the British economy and data on the volume of industrial production. According to preliminary forecasts, GDP will grow by only 0.3% in July after a 1% increase in June. The volume of industrial production should grow to 3% (in annual terms) after rising to 8.3% in the previous month. If the release is released in the "red zone" (despite the rather weak forecasts), the GBP/USD pair will get another reason for its decline.
From the technical point of view, the pair on the daily timeframe is located on the middle line of the Bollinger Bands indicator, under the Kumo cloud, and all the lines of the Ichimoku indicator. This indicates the priority of the downward movement. As soon as the pair breaks through the support level of 1.3760 (the average line of the Bollinger Bands), it will be possible to consider short positions to the next price level, which corresponds to the 1.3680 mark (the upper limit of the Kumo cloud on the weekly chart).
