Week Ahead: Enough catalysts to trigger GBPUSD breakout
After much hype, the US Federal Reserve and the Bank of England are due to make key decisions in the week ahead, as markets also digest these major economic events and data releases:
Sunday, October 31
- Japan holds general election
- China October manufacturing and non-manufacturing PMIs
Monday, November 1
- Manufacturing PMIs for China, Australia, Eurozone, UK, US
- USD: US October ISM manufacturing
Tuesday, November 2
- AUD: RBA policy decision, weekly consumer confidence
Wednesday, November 3
- CNH: China October composite and services PMIs
- EUR: Eurozone September unemployment, October composite and services PMIs
- USD: Fed rate decision
- US crude: EIA weekly US crude oil inventory report
Thursday, November 4
- Brent: OPEC+ meeting
- EUR: ECB President Christine Lagarde speech
- EUR: Germany September factory orders, Eurozone September PPI
- NOK: Norges Bank rate decision
- GBP: BOE rate decision
- USD: US weekly initial jobless claims
Friday, November 5
- AUD: RBA monetary policy statement
- EUR: Eurozone September retail sales, Germany September industrial production
- USD: US October nonfarm payrolls
- CAD: Canada October unemployment
Markets are expecting the Fed to officially announce its tapering decision in the coming week, as it unwinds its $120 billion in monthly asset purchases. As for the Bank of England, markets have pared back their expectations for a UK rate hike this month, from allocating a more than 60% chance on Thursday to 46.6% at the time of writing.
With both these hugely influential central banks expected to make key policy decisions in the coming week, naturally the GBPUSD will be in focus.
Note that the currency also known as ‘cable’ has been meandering between its 50-day and 200-day simple moving averages since mid-October. That range has been reinforced by the 38.2% and 50% Fibonacci retracement lines from the early-June high to the end-September declines.
With all these pent-up expectations in mind, a potentially bullish outcome for GBPUSD could be for the BOE to deliver on a rate hike while the Fed delays its official tapering announcement. Such a combo could see ‘cable’ breaching the above-mentioned resistance levels (200-MA and 50% Fib).
However, the bearish scenario for GBPUSD is likely to be a BOE that staves off its anticipated hike, coupled with a Fed that delivers a hawkish message to markets. That could see cable testing its 50-MA immediate support, followed by the 1.367 region which saw a double-bottom formed back in March and April, with stronger support then likely at the 23.6% Fib line which repelled Sterling bears back in July and August.
Then of course, there’s the keenly-anticipated US October jobs report. At the time of writing, markets are expecting a print of 400k. After two massively disappointing NFP prints, a better-than-expected headline figure on Friday could reinvigorate dollar bulls as they ramp up the prospects of employed Americans further fanning consumer price pressures which could force the Fed to hike rates by the middle of 2022.
In short, there are plenty of potential catalysts for cable.
Markets are paring back their bearish bets on GBPUSD going by the 25-delta risk reversals, while one-week implied volatilities for the pair have been ramped up since the start of October.