Trading the News:
What’s Expected
Time of release:
Primary Pair Impact : GBPUSD
Expected: 41.2K
Previous: 39.3K
Effects the change in Jobless Claims had over GBPUSD for the past 2 months
May 2009
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Jobless claims in the |
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April 2009
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Claims for unemployment benefits in the |
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What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
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Bullish Scenario: |
Bearish Scenario: |
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How To Trade This Event Risk
The British pound is likely to face increased selling pressures over the next 24 hours of trading as economists forecast jobless claims in the U.K. to rise 41.3K in June, and the downturn in the labor market may continue to drag on the exchange rate over the near-term as investors weigh the outlook for future growth. The final 1Q GDP reading reinforced a weakening outlook for Europe’s second largest economy as the growth rate plunged at an annual pace of 4.9% to mark the biggest decline since 1958, with business investments tumbling 7.6% from the previous quarter. Moreover, a report by the National Statistics Office showed industrial outputs unexpectedly declined in May, with manufacturing falling for the first time in three-months during the same period, and businesses may continue to scale back on production and employment in an effort to weather the slump in global trade. In addition, a separate report showed retail spending unexpectedly dropped in May for the first time in three-months, while home equity withdrawals fell at a record pace during the first quarter, and the downturn in employment is likely to hamper the outlook for economic activity going forward as households face a weakening labor market paired with tightening credit conditions. At the same time, the National Institute of Economic and Social Research saw economic activity falling at a slower pace during the three-months though June, which encouraged an enhanced outlook for future growth, and long-term expectations for higher interest rates in the U.K. may continue to drive the British pound higher as investors anticipate the Bank of England to tighten policy over the next 12 months. Meanwhile, the central bank. held the benchmark interest rate at the record-low of 0.50% in July and maintained its GBP 125B asset purchase program in an effort to shore up the ailing economy however, the board may take additional steps to stem the downside risk for growth and inflation as Governor Mervyn King expects the economic recovery to be ‘a long, hard slog.’ As a result, the British Chambers of Commerce insists that the BoE should expand its asset purchase program in order to jump-start the economy, with the Shadow Monetary Policy Committee supporting the call, and speculation for further easing could weigh on the outlook for future policy as market participants project the MPC to utilize the remaining GBP 25B allotted by the Chancellor of the Exchequer Alistair Darling in the months ahead.
Trading the given event risk favors a bearish outlook for Cable as market participants anticipate unemployment in the U.K. to rise 41.2K in June but nevertheless, the enhanced labor report for April and May has left the door open for an upward surprise. Therefore, if jobless claims rise 30.0K or less from the previous month, we will look for a green, five-minute candle subsequent to the release to confirm a buy entry on two-lots of GBP/USD. Once these conditions are met, we will set our initial stop at the nearby swing low, or a reasonable distance taking volatility into account, and this risk will establish our first target. Our second objected will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
In contrast, the downturn in global trade paired with fears of a protracted downturn could lead businesses to take further steps to lower their cost structure, and a dismal labor report could trigger a sell-off in the Sterling as the outlook for growth and inflation remains bleak. As a result, an in-line print or a rise of more than 41.2K would favor a bearish outlook for Cable, and we will follow the same setup for a short pound-dollar trade as the long position mentioned above, just in reverse.
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