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Bullish GBP/USD Outlook Favored as Jobless Claims Fall for 19-Months

By , Currency Analyst
11 June 2014 04:00 GMT

- U.K. Jobless Claims to Decline for 19 Consecutive Months

- ILO Unemployment Rate to Narrow to 6.7%- Lowest Since January 2009

Trading the News: U.K. Jobless Claims Change

Another decline in U.K. Jobless Claims may prompt a near-term advance in the GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD U.K. Jobless Claims

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Why Is This Event Important:

Indeed, the BoE Minutes due out on June 18 may highlight a growing dissent within the Monetary Policy Committee (MPC) as the central bank continues to see a stronger recovery in 2014, and the bullish sentiment surrounding the British Pound may gather pace in the second-half of the year should we see a growing number of BoE officials adopt a more hawkish tone for monetary policy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Production (MoM) (APR)

0.4%

0.4%

Personal Consumption (QoQ) (1Q P)

0.6%

0.8%

Retail Sales ex Auto (MoM) (APR)

0.5%

1.8%

The ongoing expansion in private sector consumption along with the rise in business outputs may generate a larger-than-expected decline in unemployment, and an upbeat labor report may pave the way for a higher-high in the GBP/USD as it raises the fundamental outlook for the U.K. economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (APR)

64.5K

62.9K

BBA Loans for House Purchases (APR)

45100

42173

Consumer Price Index (YoY) (APR)

1.7%

1.8%

However, sticky inflation paired with the slowdown in private lending may drag on hiring, and a dismal jobless claims report may spur a larger correction in the GBP/USD as it drags on interest rate expectations.

Read More:

COT: Euro Speculators are Most Short Since July

EURUSD or GBPJPY - Which is the Better Risk Correction Setup

How To Trade This Event Risk(Video)

Join DailyFX on Demand to Cover Current British Pound Setups

Bullish GBP Trade: U.K. Jobless Claims Contract 25.0K or Greater

  • Need green, five-minute candle following a hawkish statement to favor a long British Pound trade
  • If reaction favors buying British Pound, long GBP/USD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; need at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bearish GBP Trade: Labor Data Disappoints, Dragging on Rate Expectations

  • Need red, five-minute candle to consider a short GBP/USD trade
  • Implement same setup as the bullish British Pound trade, just in the opposite direction

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Daily

Chart - Created Using FXCM Marketscope 2.0

  • Outlook Remains Bullish as Pair Holds Above Monthly Opening Low (1.6697)
  • Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
  • Interim Support: Interim Support: 1.6660 (61.8% retracement) to 1.6680 (38.2% expansion)

Impact that the U.K Jobless Claims report has had on GBP during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR 2014

05/14/2014 8:30 GMT

-30.0K

-25.1K

-72

-85

April 2014 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims fell another 25.1K in April following the 30.6K contraction the month prior, while the ILO rate narrowed to an annualized 6.8% from 6.9% to mark the lowest reading since February 2009. Nevertheless, the GBP/USD traded lower as the print missed market expectations, and the British Pound weakened further throughout the day as the Bank of England Inflation report dampened bets of seeing the central bank normalize monetary policy ahead of schedule.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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11 June 2014 04:00 GMT