GBP/USD Forecast: Sterling Is A Lucky Winner Of Flash Crash Targeting 1.2700 And Above

• The GBP/USD is trading up at around 1.2670 ahead of US non-farm payroll report for December.
• The market expects 177K new jobs added in the US economy in December with wages rising 3.0% y/y and the unemployment rate at 3.7%.
• The UK parliament is set to resume Brexit deal debate on Monday, January 7.

​​​​​The GBP/USD recovered from the lowest level in last 21-months reached during the Wednesday’s flash crash and it is trading up 0.45% at around 1.2690 on Friday, before the US non-farm payroll report. Sterling pulled back strongly benefiting from the pull-back as the return of the risk-on sentiment on the market.

The key economic report of the day is the US non-farm payroll report that is expected to deliver 177K new jobs in December with the market also looking at the wage growth numbers. The US wages are expected to rise 3.0% y/y in December while the unemployment rate is seen stagnant at 3.7%.

The ADP private employment report on Thursday saw the number of new jobs added in the US economy rising by rocking 271K in December indicating the US government report today might see the strong reading on the upside. Given the historical correlation between the ADP and the government report, the total employment change might see numbers around 300K in the best case scenario.

The UK parliament is set to return to the debate over the Brexit deal agreed by the UK Prime Minister Theresa May with the vote scheduled for the week starting January 14. Given the division of power and fierce opposition, Theresa May is unlikely to have the Brexit deal approved by parliament and can either face a no-confidence vote or will be asked to revoke Article 50 of the EU Treaty and take the whole Brexit back.

What if the Brexit deal fails to pass the parliament? Economic consequences are detrimental!
Technically, the GBP/USD is trading in a downward sloping trend on a daily chart. The technical oscillators including Momentum and the Relative Strength index turned flat-to-higher with Sterling retreating from a fresh 21-month low and the Slow Stochastics made a bearish crossover within neutral territory. The GBP/USD bounced off a 50-day moving average and with a flash crash fell as low as 1.2438. With GBP/USD resuming sideways trend, a short-term recovery towards 1.2700 and above is not enough to reverse the trend. With Brexit deal uncertainty weighing on Sterling, a fundamental pressure is still in place to see GBP/USD falling further towards 1.2500-1.2440 level.

GBP/USD daily chart