Image Source: Pexels

The GBP/USD currency pair was trading rather comfortably near highs on Friday at around the 1.28075 level, before US jobs numbers created a rupture in Forex and sent the currency pair lower.

(Click on image to enlarge)

• Reactionary trading hit the GBP/USD pair on Friday when the Non-Farm Employment Change numbers came in stronger than anticipated.
• The higher outcome via US economic data sent the GBP/USD duo from values which were challenging highs into an immediate reversal.
• The 1.28000 level, which was being comfortably traded within sight of from Tuesday until that moment on Friday, suddenly vanished. The move lower sent the GBP/USD pair into the weekend near a value of 1.27150.

Financial institutions and speculators of the GBP/USD currency pair and the broad Forex market have a difficult week ahead. The US will release CPI numbers on early Wednesday, and then five and a half hours later the US Federal Reserve’s FOMC Statement will be published. US inflation numbers via the Consumer Price Index data will certainly create a reaction, and then the Fed’s monetary policy statement will be the climax for the Forex show.

GBP/USD Sudden Lows and Consideration

Having proven there was plenty of bullish sentiment in the GBP/USD pair for most of the past week, the currency cross did see a magnate-like performance around the 1.28000 level for a handful of days. Yet, the headline numbers from the US jobs report caused a massive amount of nervousness.

The dive lower in the GBP/USD pair was not a surprise based on the result of the headline number from the Non-Farm Employment Change, but a look deeper shows the employment picture isn’t very robust in the United States and needs to be questioned – but this did not help the GBP/USD pair climb, at least not until now.

Behavioral sentiment was in control, and traders who were long the GBP/USD pair before the US jobs numbers likely got slaughtered with costly trades -- that is, if they were not using risk management wisely. Tomorrow’s early price action will be significant, and will likely determine if this weekend and the ability to investigate the US jobs data more will create a more equal approach.

Interestingly the GBP/USD pair went into the weekend above the lows the currency pair saw last Monday, when the 1.26965 ratio was seen briefly.

Inflation and Fed Sentiment will Generate Plenty of Power

The GBP/USD pair needs to be watched closely upon opening tomorrow to see if there is a reversal after Friday’s sharp selloff. If no reversal takes place, this may indicate that the GBP/USD cross will remain within the lower edges of its price range, with some testing being seen until the US inflation data is published on Wednesday.

However, even though the CPI result is vitally important, it will only be a precursor for what could happen when the Federal Reserve takes the stage.

Financial institutions have been counting on hearing a more dovish Federal Reserve this coming Wednesday for the past month. If the Fed sounds overly cautious, this could propel the GBP/USD pair lower. Traders face a complex set of issues in the coming days via US-centric metrics, but there is also the UK election, which is now approaching in early July, which will make financial houses nervous, too.

GBP/USD Weekly Outlook: Speculative Price Range for GBP/USD is 1.25810 to 1.28520

The GBP/USD cross could prove to be very dangerous this week, and day traders without a lot of experience will need to be careful. The complexity of data and central bank considerations which will collide may cause whipsaw reactions in the GBP/USD pair with volatile price velocity.

Traders will need a serious amount of risk management in the coming days. Some traders may want to sit on the sidelines and simply watch the show that develops in the pair.

For those wanting to wager, perspective and a real grasp of technical and fundamentals will be important. If US inflation figures come in stronger than expected, this could send the GBP/USD pair lower, and a test of values from mid-May until the first week of June could be seen.

The Fed is not going to cut interest rates on Wednesday, but if they sound somewhat dovish and say they see evidence which suggests an interest rate cut could happen in late summer, this might be enough to propel the GBP/USD pair higher. Traders wanting to make wagers before the US CPI numbers and before the Fed speaks this coming Wednesday, and who have the desire to keep their positions open, need to understand they are betting in what could be a casino-like environment. 

More By This Author:

WTI Crude Oil Weekly Forecast: Mid-Term Values Clearly In Speculative Play
WTI Crude Oil Forecast: Push Higher Falters And Mid-Term Lows Sighted
EUR/USD Monthly Forecast: June 2024