The market is likely to be quiet today with US and UK public holidays.

FUNDAMENTALS

This week a slew of mid tier economic data builds up to Non Farm Payrolls at the end of the week.  Notable releases are:

May 31       Second tier but important US Data: Personal Income, Personal Spending, Chicago PMI,

June 1        Mid Tier UK data (09.30) – Consumer Credit, Mortgage Approvals, Markit Manufacturing PMI
                   US ISM Manufacturing (15.00)
                   Beige Book (19.00) (may provide some clarification of the Fed’s interpretation of data up to this point).

June 2        UK Markit Construction PMI (09.30)
                   ADP Employment (13.15) Initial Claims (13.30)
                   (ADP is not a premium indicator but could move the market in a highly speculative environment).

June 3        Nonfarm Payrolls (13.00) – previous month 165000 vs 215000 prev

                   US ISM Non-Manufacturing (15.00)

(Times are GMT+1)

We may see increased volatility as the drip of information leads to speculation on its effects on the Fed’s thinking around a June/July rate hike.  The Fed communicated through its FOMC minutes and most recently Yellen’s speech (May 27) that is looking for signs that would contribute towards inflation to support a June or July rate hike.  It should be noted that US economic data has not been spectacular, only “satisfactory” and it seems it would not take much to give the Fed justification to further postpone a rate hike, softening the dollar.  Real wage Growth in Nonfarm Payrolls may be pivotal.

In addition, the UK EU Referendum Campaign is well under way and polling data has proven its ability affect GBP, with “Remain” outcomes enhancing the currency.

Although GBP is in limbo to some extent, we should pay attention to the UK’s economic performance as it is probably the next major economy to consider rising interest rates if other factors, such as a Brexit “remain” vote, play out.

This week generally:  Strong dollar with the potential to fade quickly on poor data.  Volatile GBP paying close attention to Brexit polling.  Sentiment is bull dollar and neutral/cautious bull GBP.

Dollar bullishness will evaporate if the Fed or US Economic Data move against the June rate hike.

As considered in previous posts, you might assess that both GBP and USD are relatively strong and that more opportunities lie in pairing them with weaker currencies.

TECHNICALS

The daily chart shows us bullish looking price action, although it somewhat fits an ascending wedge pattern which implies a bearish breakout if the lower side of the ascending wedge is broken through (Chart A). 

GBP is making bullish higher highs and higher lows on the H4 time frame too, although is currently in a downward trajectory following a double top around the 1.475 long term resistance level.

Meanwhile price is oversold on the H4 stochastic around the weekly pivot point meaning we might see a short rally before any further downside action (Chart B). This would provide selling opporunities around 1.47.

Despite recent GBP strength, GBPUSD risk does seem to be to the downside at least until price action meets the lower bound of the blue channel. 

At this point a breakout to the downside is possible, or the channel will hold for another upward leg.