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Research Analyst

Pound and gold head lower before NFP data

  • Two instruments that might be expected to move in the lead up to the NFP are the pound and gold
  • Technical analysis points to more downside for both these instruments in the short term

Last month's Non Farm Payrolls (NFP) data showed the US economy added 530K jobs in June. The number of jobs caught many off-guard as it was more than double what the market was expecting.  

August’s NFP report, which will be released this Friday, September 2, is forecast to deliver 300K jobs. Will the NFP beat forecasts once more? And if it does, how will investors and traders react, now that they must fold this strong jobs data into their predictions and anticipation of US Federal Reserve rate hikes? 

United States Non Farm Payrolls to July 

Two instruments that might be expected to move in the lead up to, and directly after, the NFP data release are the GBP/USD and XAU/USD (gold).  

A technical analysis for the GBP/USD shows that this pair may continue to move towards the downside in the lead up to the NFP. Last week, the pair created a new low for its current consolidation zone on the 4 hourly chart. The GBP/USD closed below 1.1751 and in between the 78.6% and 100% level on the Auto Fib Retracement Indicator. The cause for the GBP/USD pairs last two bearish candles may have been Federal Reserve’s Jerome Powell’s speech at Jackson hole, which also is being blamed for the 1000-point (or 3.0%) fall in the Dow Jones Industrial Average. In Powell’s speech, he pledged that the Federal Reserve would “use our tools forcefully” to attack inflation. 

GBP/USD 4H, with Auto Fib Retracement Indicator 

If the US dollar remains more bullish than the British pound, we can watch for breaks at 1.1717 and 1.1673. 

Similarly, gold failed to close above the 61.8% level of the Auto Fib Retracement Indicator at $1742.11/oz on the 4-hourly chart. A solid bearish candle printed on Friday helped to push the metal from 38.2% to its current position and engulfing the 3-days' worth of gains that gold previously posted.  

XAU/USD 4H, with Auto Fib Retracement Indicator 

With the NFP data due this coming Friday, the price of gold might pierce below 1735.76 before potentially tapping the 100% level at 1727.68. The 100% fib retracement level is a critical level to watch as it is generally a strong demand zone on the weekly timeframe. Price targets could be 1717.41, if the supply zone at 1727.67 doesn’t live up to its expectation. 

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