GBP/USD, Oil Forecast: Two trades to watch

GBP/USD falls as the labour market weakens & USD recovers

• UK unemployment rises to 4.4%
• Wage growth accelerates to 5.6% on base effect
• GBP/USD falls below 1.23

GBP/USD is falling, weighed down by weaker UK jobs data and a stronger dollar as Trump is sworn in as the president of the United States.

In the UK, unemployment unexpectedly rose to 4.4%, accompanied by the largest fall in payroll numbers since November 2020 and another drop in the number of vacancies in the economy, pointing to potential softening in the labour market.

Vacancies fell to 812,000 in December from 813,000 in November, marking the 30th consecutive month of declines and pointing to an underlying trend of a weaker labour market

However, wage growth accelerated to a six-month high in the three months to November, rising to 5.6%, in line with expectations.

The Bank of England considers wage growth a key driver of inflation. Earnings growth remains sufficiently strong to be incompatible with a mean sustainable return to the Bank of England’s 2% inflation target.

However, it's worth noting that the wage strength is owing to a base effect, given the unusually low print this time last year.

The markets still expect the Bank of England to cut interest rates in February with a further one or two more rate cuts seen over the year.

Meanwhile, the US dollar is heading higher after losses yesterday following Trump's inauguration speech.

Trump stopping short of applying trade tariffs on his first day pulled the US dollar sharply lower. However, talk of plans for trade tariffs by the start of next month is given the greenback is based.

The outlook for the US dollar remains strong given the strength of the US economy and the lower likelihood of federate cuts compared to other major central banks.

GBP/USD forecast – technical analysis

GBP/USD trades in a falling channel dating back to late September. The price has recovered from 1.21, the multi-year low reached last week. However, the recovery ran into resistance at 1.2350, and GBP/USD once again trades below 1.23.

Still, the hammer candlestick pattern points to a bullish reversal. Buyers will need to rise above 1.23 and 1.2350 to create a higher high and head towards 1.25.

Sellers, encouraged by longer-term downtrend and the RSI below 50, will need to take out support at 1.22 to test 1.21 and create a lower low.

Oil steadies after Tump’s pledges to “Drill baby Drill”

• Trump promise to boost US oil production
• Chinese economic growth supports oil prices
• WTI tests year-old trendline support

Oil prices are edging higher after sharp losses yesterday.  The increased volatility and price swings come as Trump laid out his pro-fossil fuel agent after being sworn in.  Trump got to work on dismantling the Biden administration’s energy policies to focus on boosting oil and gas production and promising to fill up strategic reserves.

On his first day, Trump withdrew the US from the Paris Agreement and reversed Biden’s ban on offshore oil and gas drilling in part of the US continental shelf to push for more oil and gas output. The prospect of additional supply being released into the market pulled oil prices lower.  “We will drill baby drill. America will be a manufacturing nation again.

However, Trump's decision to stop short of applying trade tariffs on China on day one of his second term has raised optimism that he could adopt a less aggressive approach towards China, the world’s largest oil importer, which would be beneficial to the Chinese economy and the oil demand outlook.

Encouraging Chinese economic data could also support oil prices. Last week's data showed that China’s economy grew 5.4% YoY in Q4, stronger than the 5% forecast.

Meanwhile, easing tensions in the Middle East could cap gains. Hamas and Israel swapped hostage and inmates on Sunday, marking the start of a ceasefire.

Oil forecast - technical analysis

Oil is consolidating after its recent run higher as momentum weakens The price rebounded lower from its 80.77 peak, breaking below the 78 support zone, and it tested the falling trendline support, dating back to October 2023.

Sellers will need to extend the losses below the 200 SMA at 75.00 to negate the near term rally and bring 72.50 support into focus.

Buyers will look to rise above 78, resistance zone and 80.00 to create higher high.