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GBP/USD to Carve Lower-Low on Strong U.K. Job & Wage Growth Report

GBP/USD to Carve Lower-Low on Strong U.K. Job & Wage Growth Report

David Song, Shuyang Ren,

- U.K. Jobless Claims to Contract 30.0+K for Fifth Consecutive Month.

- Wage Growth to Pick Up for Second Month to Annualized 0.7% in August.

Trading the News: U.K. Jobless Claims Change

Another 35.0K decline in U.K. Jobless Claims should raise the prospects for a stronger recovery, but the Average Hourly Earnings print may have a greater impact on the GBP/USD as the weakening outlook inflation drag on interest rate expectations.

What’s Expected:

GBP/USD Jobless Claims

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Why Is This Event Important:

Indeed, the larger-than-expected slowdown in the U.K. Consumer Price Index (CPI) may give the Bank of England (BoE) greater scope to retain its highly accommodative policy stance for an extended period of time, but a marked pickup in wage growth may spur a greater dissent within the Monetary Policy Committee (MPC) as the economic recovery becomes more broad-based.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance (AUG)

-3.000B

-1.917B

Markit Purchasing Manager Index Construction (SEP)

63.5

64.2

Retail Sales inc. Auto (MoM) (AUG)

0.4%

0.4%

Increased demand from home and abroad along with the ongoing strength in building activity may generate a meaningful pickup in job & wage growth, and a positive developments should spur a bullish reaction in GBP/USD as it renews bets for higher borrowing costs in the U.K.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Industrial Production (MoM) (AUG)

0.0%

0.0%

Markit Purchasing Manager Index Services (SEP)

59.0

58.7

Markit Purchasing Manager Index Manufacturing s.a. (SEP)

52.7

51.6

However, we may continue to see subdued wage pressures in the U.K. as businesses scale back on production, and the majority of the BoE may look to carry the current policy well into 2015 amid the persistent slack in the real economy.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Claims Slips 35.0K+, Average Hourly Earnings Climbs 0.7% or Greater

  • Need green, five-minute candle following the print to consider a long GBP/USD trade
  • If market reaction favors buying sterling, long GBP/USD 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

Bullish GBP Trade: Job, Wage Growth Disappoint

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

Read More:

Price & Time: A "Healthy" Decline in USD/JPY?

EURAUD Scalps Target 1.46- Breakout Levels Well Defined

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD is currently sitting at support, but downside targets remain favored amid string lower low highs & lows; downside break in RSI to highlight a further decline.
  • Interim Resistance: 1.6280 (38.2% retracement) to 1.6300 (50.0% retracement)
  • Interim Support: 1.5890 (61.8% retracement) to 1.5900 (50.0% expansion)

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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)

AUG 2014

09/17/2014 8:30 GMT

-30.0K

-37.2K

-19

-49

August 2014 U.K. Jobless Claims Change

GBP/USD Chart

U.K. claims for jobless benefits declined another 37.2K in August to mark the fourth consecutive decline of more than 30.0K, while the ILO Unemployment Rate unexpectedly fell to an annualized 6.2% in July to mark the lowest reading since December 2008. Despite the ongoing recovery in the labor market, it seems as though the Bank of England (BoE) will keep its currency policy till year-end as wage growth in the U.K. remains largely subdued. Nevertheless, the GBP/USD struggled to hold above the 1.6300 region amid the fresh developments coming out of the BoE Minutes, but the pair strengthened during the North American trade, with the pair closing at 1.6265.

--- Written by David Song, Currency Analyst and Shuyang Ren

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

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