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GBP/USD Rebound from Key Support to Accelerate on U.K. Jobless Claims

GBP/USD Rebound from Key Support to Accelerate on U.K. Jobless Claims

2014-03-19 05:00:00
David Song, Strategist
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- U.K. Jobless Claims to Contract for Sixteen-Consecutive Month

- ILO Unemployment Rate to Hold at 7.2% for Second Month

Trading the News: U.K. Jobless Claims Change

Another 25.0K decline in U.K. Jobless Claims may prompt a meaningful rebound in the GBPUSD as it raises the Bank of England’s (BoE) scope to normalize monetary policy sooner rather than later.

Forex-GBPUSD-Rebound-from-Key-Support-to-Accelerate-on-U.K.-Jobless-Claims_body_ScreenShot230.png, GBP/USD Rebound from Key Support to Accelerate on U.K. Jobless Claims

Why Is This Event Important:

However, the BoE Minutes may limit the market reaction should the central bank shift its tone for monetary policy, and the British Pound may face a larger correction over the near-term if the developments coming out of the U.K. drag on interest rate expectations.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

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

1.5%

1.8%

Manufacturing Production (MoM) (JAN)

0.3%

0.4%

Purchasing Manager Index- Manufacturing (FEB)

56.8

56.9

The pickup in business outputs along with the ongoing expansion in building activity may prompt a sharp decline in U.K. Jobless Claims, and a positive print may heighten the bullish sentiment surrounding the British Pound as it raises the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Visible Trade Balance (JAN)

-8.600B

-9.793B

Private Consumption (QoQ) (4Q P)

0.6%

0.4%

Retail Sales ex Auto (MoM) (JAN)

-1.2%

-1.5%

However, we may see businesses scale back on hiring amid the slowdown in private sector consumption paired with the widening trade deficit, and a dismal development may spur a further decline in the GBPUSD as BoE Governor Mark Carney warns of the spare capacity in the real economy.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Jobless Claims Decline 25.0K+, Unemployment Falls Back to 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. Job Growth 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-GBPUSD-Rebound-from-Key-Support-to-Accelerate-on-U.K.-Jobless-Claims_body_Picture_2.png, GBP/USD Rebound from Key Support to Accelerate on U.K. Jobless Claims

Chart - Created Using FXCM Marketscope 2.0

  • Fails to Close Above 1.6600; Close Below Support to Open Door for 1.6400 Handle
  • Relative Strength Index Looks to Threaten Bullish Trend
  • Interim Resistance: 1.6850-60 (78.6% expansion)
  • Interim Support: 1.6540 (38.2% expansion) to 1.6550 (78.6% 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)

JAN 2014

02/19/2014 9:30 GMT

-20.0K

-27.6K

-45

-37

January 2014 U.K. Jobless Claims Change

Forex-GBPUSD-Rebound-from-Key-Support-to-Accelerate-on-U.K.-Jobless-Claims_body_ScreenShot229.png, GBP/USD Rebound from Key Support to Accelerate on U.K. Jobless Claims

U.K. Jobless Claims contracted another 27.6 K in January following a revised 27.7K drop the month prior, while the Unemployment Rate using the International Labour Organization’s methodology unexpectedly advanced to 7.2% from 7.1%. Despite the larger-than-expected decline in jobless claims, the surprise uptick in the jobless rate pushed the GBPUSD below the 1.6660 region, but the British Pound pared the decline going into the close as the pair ended the day at 1.6677.

--- 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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