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GBP to Target Higher High as Unemployment Approaches 7% Threshold

GBP to Target Higher High as Unemployment Approaches 7% Threshold

2014-01-22 05:00:00
David Song, Gregory Marks,
Share:

- U.K. Jobless Claims to Decline for Fourteen-Consecutive Month

- ILO Unemployment Rate to Narrow to 7.3%- Lowest Since April 2009

Trading the News: U.K. Jobless Claims Change

U.K. jobless claims are projected to fall another 32.0K in December and the ongoing improvement in the labor market may trigger fresh highs in the GBPUSD as it raises the outlook for growth and inflation.

What’s Expected:

Time of release: 01/22/20149:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: -32.0K

Previous: -36.7K

DailyFX Forecast: -30.0K to -35.0K

Why Is This Event Important:

Indeed, the stronger recovery in the U.K. raises the scope of seeing the Bank of England’s (BoE) 7% unemployment threshold being breached later this year, and the central bank may implement a dovish twist for its forward-guidance on monetary policy as the real economy remains far from full-capacity.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Auto (MoM) (DEC)

0.3%

2.8%

Mortgage Approvals (NOV)

69.7K

70.8K

Purchasing Manager Index Construction (DEC)

62.0

62.1

The resilience in private sector consumption paired with the pickup in building activity may continue to generate a positive development, and a marked decline in unemployment claims may spur a higher high in the GBPUSD as it maintains the bullish trend dating back to July.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Industrial Production (MoM) (NOV)

0.4%

0.0%

Manufacturing Production (MoM) (NOV)

0.4%

0.0%

Purchasing Manager Index- Manufacturing (DEC)

58.4

57.3

However, the recent slowdown in business outputs paired with the ongoing slack in the real economy may drag on job growth, and a dismal print may spark a more meaningful correction in the British Pound as market participants scale back bets for a BoE rate hike.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Jobless Claims Fall 32.0K or Greater

  • Need green, five-minute candle following the print to consider a long GBPUSD trade
  • If reaction favors a buy trade, long GBPUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for 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: Unemployment Report Disappoints

  • Need red, five-minute candle to favor a short GBPUSD trade
  • Implement same setup as the bullish British Pound trade, just in reverse

Potential Price Targets For The Rate Decision

GBPUSD Daily

Forex_GBP_to_Target_Higher_High_as_Unemployment_Approaches_7_Threshold_body_Picture_2.png, GBP to Target Higher High as Unemployment Approaches 7% Threshold

Chart - Created Using FXCM Marketscope 2.0

  • Bias Remains Bullish Above 1.6300; Looking for Higher High
  • Relative Strength Index Breaks Out of Bearish Momentum
  • Interim Resistance: 1.6550 (78.6 expansion) to 1.6600 Pivot
  • Interim Support: 1.6300 Pivot to 1.6310 (50.0 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)

Nov 2013

12/18/2013 9:30 GMT

-36.0K

-36.7K

-17

-19

November 2013 U.K. Jobless Claims Change

Forex_GBP_to_Target_Higher_High_as_Unemployment_Approaches_7_Threshold_body_Picture_1.png, GBP to Target Higher High as Unemployment Approaches 7% Threshold

Jobless Claims figures came in slightly better than expected while prior figures were revised lower from -41.7K to -42.8K thus contributing to another batch of strong data for the United Kingdom. The ILO Unemployment rate saw a drop to 7.4% vs. 7.6% prior and the Pound saw some initial chop at the release before closing relatively unchanged on the day. Since then, the GBP/USD pair has (for the most part) remained trading between 1.63 and 1.65 as further catalysts to help further Pound strength have remained on the sidelines. After a strong Retail Sales reading for December, a beat of Jobless Claims here could help further support the Pound despite a weak CPI print for last month. Note that there is additional event risk at the same time with Bank of England Minutes being released as well.

--- 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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