So sudden and strong decline of the pound sterling against the US dollar certainly nobody expected – especially at night when traders of both Europe and US practically don’t think about investments. Popular Cable in less than four minutes lost almost 600 pips.

No one knows what caused such sudden fall?

When European traders finally sat down to their computers it almost caused panic. All morning there are speculations what could be the reason of such a strong movement. There are many theories, but it is hard to indicate the most likely.

But one thing is certain – the sentiment around the pound in recent times was in low. Investors knew perfectly well that the cable is a ticking time bomb that sooner or later will have to implode. But let’s look how economists explain the depreciation:

• RBC Capital Markets – event coincided with the publication of the FT article by French President demanding tough negotiations on Brexit. The movement accelerated after breaking SL at a height of 1.2600 due to the low liquidity of the market before NFP
• Derek Mumford – movement resembles a small flash crash. Sterling may fall in the weeks up to 1.15, if earlier he could not return over 1.28.
• IG Ltd. – all point to the fact that we had to deal with increased algorithms that processed FT article regarding the proposal of French President Hollande. During periods of low market liquidity in the night, they tried to open too large orders.
• Oanda – to pound lacked just the bear side, which would be interested in buying the falling pound. In the night the likelihood of such a situation is definitely higher
• Mizuho Securities – likely to cause Friday fall was the so-called fat finger (finger thick). This describes the erroneous transactions when the trader makes a mistake and put too much amount of the order. Along the way were violated while a lot of Stop Losses and barrier options, which only deepened the movement.
• CNBC – the reason was to break the barriers of the option during the low liquidity, which has led to such strong movements
• UBS – as that on other currency pairs we didn’t saw such strong moves, it cannot be related to problems with liquidity. Eliminated the option of fat big toe – in this case, because we do not see the continuation of the movement, which in this case takes place.
• European Bank – the movement was stronger than the British referendum. The market ran out of bids, no one wanted to buy a pound at the moment and the avalanche effect dragged prices down

There is a lot of theories. You may find that each of these factors in a greater or lesser extent, contributed to the movement, which shows the chart below:

How the situation presents itself today? GBPUSD recovered in the first hour after falling, more than 350 pips. Closing of the candle constituted H1 support (in conjunction with the level of 1.2387) which led to slightly bounce up. All the time we are well below the lows of Thursday’s session:

What awaits us in the course of today’s session?

Last week accustomed us to the fact that most of the significant macroeconomic publications appear in the afternoon. Similarly it will be today – in the morning we will know only the results of the British industrial production (10:30).

Other news starting from 14:30

• 14:30 – Report of the Canadian labor market
• 14:30 – report from the US labor market and NFP
• 16:00 – Canadian PMI by Ivey
• 16:00 – forecasts for British GDP
• 16:30 – survey forecasts business Bank of Canada
• 16:30 and 18:45 – members of the Fed – Fischer and Mester

Markets will focus primarily on the (bold) above jobs report and employment in non-farm payrolls (NFP). It is that event which should attract the attention of the whole market on Friday.

How will the NFP look like?

After Thursday’s claims it would seem that the increase in jobs will exceed analysts’ forecasts. Looking at the results of Wednesday’s changes in employment by ADP, it is no longer so certain. Please note that the NFP is a very volatile indicator and analysts are rarely able to accurately predict what final value will be – specially that should be added the monthly revisions of earlier readings, which can also be very strong.

Forecasts before today’s publication (compared to the results for August) are as follows:

•  NFP: 171K, Previously 151K
•  Unemployment rate: unchanged at 4.90%
•  Average Hourly Earnings m / m: + 0.2%, + 0.1% previously
•  Average hourly earnings y / y: unchanged at + 2.4%

In August payrolls disappointed market expectations, and the main reading showed that the economy created “only” 151,000 new jobs in non-agricultural sector (with the expectations of 180,000 and the July results of 275 thousand). Although the reading was not the worst, and looking at them, from Fed point of view has proven still insufficient to raise interest rates.

What expect largest investment banks from Friday’s publication? They believe the unemployment rate will remain at current levels while the NFP should not drop below the 135 thousand. If the market forecasts are right, then the USD certainly adds another brick to the gains seen this week.

However even a very good NFP reading (ie. above 200 thousand) in context of the increase in unemployment and a slowdown in hourly earnings will not be able to so strongly affect the appreciation of the dollar.

EURUSD is currently moving in a clearly time-limited technical formation – increased volatility after the publication of the results of the report of the US labor market may help in breaking the top or bottom. For now, the Friday price violates the lower limit – question whether it manages to close in such a form.