The pound-dollar pair, as well as the euro-dollar pair, cannot determine the vector of its movement. For the third week, these currency pairs have been trading in the 120-point price range, alternately pushing off from its borders. The dollar plays with the pound like a cat and a mouse: as soon as the British pound begins to gain momentum, the greenback strengthens its position, returning the GBP/USD pair to the lower border of the 1.4100-1.4220 range. But that's where it all ends: the bears are not able to develop a large-scale downward movement due to the vulnerability of the US currency. As a result, the pair is forced to fluctuate within the occupied price tier.
Today's dynamics of GBP/USD are indicative. So, in the first half of the day, the pound showed positive dynamics, once again testing the 42nd figure. The reason for the upside roar was the news that the European Union and the United Kingdom, after months of disputes, still agreed on the terms of fishing. The Agreement sets the total allowable catch for 75 joint fish stocks for the current year, as well as for some deep-sea stocks for 2021 and 2022. Mutual access to each other's waters is now provided through the fishing vessel licensing system. The document was the first annual agreement on a new trade pact between the EU and Britain.
It is worth recalling here that the so-called "fishing rights" was the most problematic stumbling block in the context of trade relations after Brexit. The differences here were, at first glance, insurmountable. London called the EU's demands to provide access for European fishermen to British fishing areas "unacceptable", calling it incompatible with the UK's status as an independent coastal state. Brussels, in turn, insisted on the opposite. The negotiators offered different solutions to the problem. In particular, the EU proposed a model based on the principle of "zonal attachment" – that is, the British quota shares would depend on the length of stay of fish populations in the waters of the UK. But London rejected this option, as did many others. For many months, the situation was a stalemate, so the conclusion of the above Agreement supported the British currency.
However, at the start of the US session, the GBP/USD bears once again seized the initiative, taking advantage of the strengthening of the US currency. The dollar again received support from macroeconomic reports. For several weeks (after the publication of a resonant inflation release), dollar bulls are sensitive to statistics, considering current trends through the prism of monetary policy prospects. Today's releases are of particular importance, as they relate to the field of American labor. As early as tomorrow – June 4 – Nonfarm payrolls will be published, so today's signals were interpreted in favor of the greenback.
First, the report from ADP came out in the "green zone". According to the agency's specialists, in May, 978,000 jobs were created in the private sector of the United States. This result was much higher than the forecast level - analysts expected to see this figure at the 600,000 mark. If the official figures of the nonfarm payroll report follow the trajectory of this release, the dollar will again try on the role of the favorite of the foreign exchange market. To date, the consensus forecast regarding the official data suggests that the labor market in May will show a fairly strong growth. According to experts, last month, the US created 670,000 jobs in the non-agricultural sector. But the unemployment rate should fall to 5.9%.
The second factor supporting the greenback was the weekly increase in initial applications for unemployment benefits, which also came out in the "green zone". The indicator has consistently declined for the fifth week in a row. If at the end of April this indicator was at the level of 590,000, today it came out at the level of 385,000.
The above-mentioned releases again brought back to the agenda the question of a possible tapering of QE before the designated deadline. And while many Fed members have denied such intentions, the market "lives on hope." Moreover, some representatives of the Federal Reserve really toughened their rhetoric, allowing "hawkish decisions". If tomorrow's release came out in the "green zone", bullish sentiment will only strengthen, supporting the greenback.
On the other hand, the US currency may become a victim of inflated expectations. Let me remind you that on the eve of the previous Nonfarm reports, many experts also gave bold forecasts about the growth of the American labor market. But the result was the opposite: all the components came out much lower than the predicted values.
At the moment, the dollar is in demand on a wave of optimism about tomorrow's release. But do not forget about the principle of "buy the rumor, sell the fact". If the Nonfarm payroll disappoints investors, the dollar will crash down across the entire market, including when paired with the pound. Therefore, despite the downward dynamics of the GBP/USD pair, it is not necessary to succumb to the temptations of short positions now – the situation is too uncertain. Until tomorrow's release, it is best to stay out of the market.
The material has been provided by InstaForex Company - www.instaforex.com