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GBP to Eye Fresh Highs as U.K. Jobless Claims Contract for 15-Months

GBP to Eye Fresh Highs as U.K. Jobless Claims Contract for 15-Months

David Song, Gregory Marks,

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

- ILO Unemployment Rate to Hold at 7.1%- Lowest Since 2009

Trading the News: U.K. Jobless Claims Change

The bullish sentiment surrounding the British Pound may gather pace over the next 24-hours of trading as U.K. Jobless Claims are expected to contract another 20.0K in January.

What’s Expected:

Time of release: 02/19/2014 9:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: -20.0K

Previous: -24.0K

DailyFX Forecast: -10.0K to -25.0K

Why Is This Event Important:

Beyond the Bank of England (BoE) Minutes, an upbeat labor report may a more meaningful reaction in the GBPUSD as it raises the outlook for growth, and it seems as though Governor Mark Carney will look to normalize monetary policy sooner rather than later as the central bank anticipates a stronger recovery in 2014.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Construction Output s.a. (MoM) (DEC)

2.0%

2.0%

Purchasing Manager Index (JAN)

61.5

64.6

Retail Sales ex Auto (MoM) (DEC)

0.3%

2.8%

The ongoing pickup in building activity paired with the resilience in private consumption may spur a marked rise in job growth, and a positive development should prompt a bullish reaction in the sterling as it encourages an improved outlook for the U.K economy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Industrial Production (MoM) (DEC)

0.6%

0.4%

Manufacturing Production (MoM) (DEC)

0.6%

0.3%

Purchasing Manager Index- Manufacturing (JAN)

57.3

56.7

However, we may see U.K. firms scale back on hiring amid the slowdown business outputs, and a dismal print may trigger a larger correction in the GBPUSD as it dampens bets of seeing a rate hike later this year or even in early 2015.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Jobless Claims Contract 20.0K+, Jobless Rate Falls From 7.1%

  • Need green, five-minute candle following the release to consider a long British Pound trade
  • If market reaction favors buying sterling, 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: U.K. Employment Report Disappoints

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

Potential Price Targets For The Rate Decision

GBPUSD Daily

Forex_GBP_to_Eye_Fresh_Highs_as_U.K._Jobless_Claims_Contract_for_15-Months_body_Picture_2.png, GBP to Eye Fresh Highs as U.K. Jobless Claims Contract for 15-Months

Chart - Created Using FXCM Marketscope 2.0

  • Looking for Higher Low as Ascending Channel Remains Intact
  • Relative Strength Index Preserves Bullish Trend from July
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • 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)

DEC 2013

01/22/2014 9:30 GMT

-32.4K

-24.0K

+70

+98

December 2013 U.K. Jobless Claims Change

Forex_GBP_to_Eye_Fresh_Highs_as_U.K._Jobless_Claims_Contract_for_15-Months_body_Picture_1.png, GBP to Eye Fresh Highs as U.K. Jobless Claims Contract for 15-Months

Jobless Claims figures came in at -24.0K, missing economist estimates of a -32.4K change in the unemployment count. In addition, prior figures for November saw a revision from -36.7K to -34.3K. December’s figures marked the third higher print after the count made a September low never before seen on our ten year records. Although the print missed estimates, the negative figure still indicated a contraction in the unemployment claims count and the ILO Unemployment Rate dropped to 7.1% vs. 7.3% estimates. This supported the Pound broadly at the release as market sentiment continued to remain bullish on the Cable. After pressing multi-year highs, we may need to see a very strong print to continue the Pound’s ability to break key levels and fresh highs.

--- Written by David Song, Currency Analyst and Gregory Marks

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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