Introduction:
The GBP/USD pair has experienced significant volatility in recent trading sessions, as a worse-than-expected US Nonfarm Payrolls report drove the pair lower. Despite the report indicating that the US economy added fewer jobs than expected, the initial reaction favored the US Dollar, causing the GBP/USD to tumble. In this article, we’ll explore the factors driving the recent volatility in the currency market and what traders can expect in the coming days.
Factors Driving GBP/USD Volatility:
One of the primary drivers of the recent GBP/USD volatility is the US Nonfarm Payrolls report, which is released on the first Friday of every month. The report provides an insight into the health of the US labor market and is closely monitored by traders and analysts alike. In the most recent report, the US economy added only 49,000 jobs, significantly lower than analysts’ expectations of 105,000 jobs.
While the weaker-than-expected Nonfarm Payrolls report would typically be bearish for the US Dollar, the initial market reaction favored the currency. One possible explanation for this phenomenon is that traders are pricing in a faster-than-expected economic recovery in the US, which could lead to higher interest rates and a stronger Dollar. Additionally, the report may have already been priced into the market, meaning that the actual figures did not come as a surprise to traders.
Another factor contributing to the GBP/USD volatility is the ongoing uncertainty surrounding Brexit. While the UK officially left the European Union on January 31, 2020, negotiations on future trade relations are ongoing. The lack of a clear outcome to these negotiations is weighing on the Pound, as traders remain uncertain about the future of the UK economy.
Technical Analysis of GBP/USD:
From a technical perspective, the GBP/USD pair is currently trading below its opening price and has been exhibiting bearish momentum. The pair has broken below its support level at 1.2470, indicating a potential trend reversal. Additionally, the Moving Average Convergence Divergence (MACD) indicator has crossed below its signal line, confirming the bearish momentum.
Looking ahead, traders will be closely watching the 1.2370 support level for the GBP/USD pair. If the pair breaks below this level, it could signal a further downward trend, with the next support level at 1.2200. On the other hand, if the pair manages to break above its resistance level at 1.2470, it could indicate a potential bullish trend, with the next resistance level at 1.2650.
Conclusion:
In conclusion, the GBP/USD pair has experienced significant volatility in recent trading sessions, despite a weaker-than-expected US Nonfarm Payrolls report. The factors driving this volatility include uncertainty surrounding Brexit and the possibility of a faster-than-expected economic recovery in the US. From a technical perspective, the pair is exhibiting bearish momentum and is currently trading below its opening price. Traders will be closely watching key support and resistance levels to gauge the future direction of the pair.
