GBP/USD pares gains above 1.2550 ahead of US NFP, Biden’s speech

• GBP/USD fades the previous day’s rebound from a fortnight low.
• Hawkish expectations from the BOE versus doubts on the Fed’s moves post-September probe bears.
• Mixed sentiment, holidays in the UK allowed traders to consolidate the biggest daily gains in two weeks.
• US ISM Services PMI for May will also decorate calendar, Brexit/political headlines are important too.

GBP/USD bulls step back after the biggest daily gains in two weeks as traders struggle for fresh clues during early Friday. That said, the cable retreats to 1.2570 while paring the previous day’s gains of late.

Off in the UK, mixed concerns surrounding China and a pause in the pre-NFP anxiety seem to weigh on the GBP/USD prices of late.

The market’s cautious sentiment could be witnessed via the S&P 500 Futures and the US 10-year Treasury yields as both of them struggle around 4,175 and 2.91% even if the Wall Street benchmarks rose the most in a week on Thursday.

Softer early signals for the US employment data could be the first reason for the market’s inaction. On Thursday, the US ADP Employment Change eased to 128K for May, versus 300K forecasts and a downwardly revised 202K previous reading. The Weekly US Initial Jobless Claims, on the other hand, dropped to 200K compared to 210K anticipated and 211K prior. Further, Nonfarm Productivity and Unit Labor Costs both improved in Q1, to -7.3% and 12.6% respectively, compared to -7.5% and 11.6% figures for market consensus. Furthermore, US Factory Orders for April softened to 0.3%, from a revised 1.8% in March and 0.7% forecast.

It’s worth noting that comments from Deputy US Trade Representative (USTR) Sarah Bianchi seemed to have offered the latest challenge to market sentiment as the diplomat said, “USTR is seeking a 'strategic realignment' with China, tariff structure that 'makes sense'.” The positive mood, however, was challenged by statements like, “‘All options are on the table’ regarding tariff decisions on Chinese imports.” USTR Bianchi also suggested faster trade talks with Taiwan which may not be liked by China and hence challenge GBP/USD prices. On the same line were statements from China’s Foreign Ministry spokesman Zhao Lijian who conveyed dislike for the US’ law banning imports from Xinjiang.

Elsewhere, the Australia and New Zealand Banking Group (ANZ) highlights the difference between the currency BOE rate and the one per Taylor rule to suggest more work for the “Old Lady”. Further, a Tory critic, who is a UK Member of Parliament (MP), suggested rejoining the bloc and chatters over a no-confidence vote for UK Prime Minister (PM) Boris Johnson also weighed on the GBP/USD prices.

Looking forward, expectations of likely softer US data may keep GBP/USD buyers hopeful. That said, the headline US NFP is expected to ease to 325K versus 428K prior whereas the ISM Services PMI may retreat from 57.1 to 56.4. Other than the data, US President Joe Biden’s speech will also be important. However, a Platinum Jubilee Bank Holiday can restrict the pair’s moves on Friday.

Read: Nonfarm Payrolls Preview: It is all about the money, three scenarios for wage growth and the dollar

Technical analysis

GBP/USD pullback takes clues from the recently smaller green bars on the MACD histogram, the difference between the MACD line and signal line, as well as failures, to cross the 10-DMA level surrounding 1.2580. Even if the quote manages to cross the 1.2580 immediate hurdle, the latest swing high around 1.2670 precedes a convergence of the descending trend line from February 18 and 50-DMA, close to 1.2700-15, to challenge the pair buyers.

On the flip side, the pair’s downside past 21-DMA support of 1.2460 will need validation from the 1.2410-2400 region, comprising levels marked since April 28, to recall GBP/USD bears.