GBP/USD to Mount Larger Rebound on Strong U.K. Labor/Wage Report
- U.K. Jobless Claims to Contract for 26th Consecutive Month in December.
- Wage Growth to Pick Up for Fifth Month to Annualized Rate of 1.7%.
Trading the News: U.K. Jobless Claims Change
Another 25.0K contraction in U.K. Jobless Claims paired with an uptick in wage growth may spark a larger rebound in GBP/USD as it raises the Bank of England’s (BoE) scope to normalize monetary policy in 2015.
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Why Is This Event Important:
Despite bets of seeing another 7-2 split within the Monetary Policy Committee (MPC), BoE Governor Mark Carney may continue to prepare U.K. households and businesses for higher borrowing costs as the ongoing improvement in the labor market fuels expectations for a faster recovery.
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Expectations: Bullish Argument/Scenario
|Producer Price Index- Output n.s.a. (YoY) (DEC)||-0.4%||-0.8%|
|Net Consumer Credit (NOV)||1.1B||1.3B|
|Retail Sales ex Auto (MoM) (NOV)||0.3%||1.7%|
Lower input costs paired with the expansion in private sector consumption may prompt U.K. firms to expand their labor force, and a slew of positive developments may heighten the appeal of the British Pound as it raises the outlook for growth and inflation.
Risk: Bearish Argument/Scenario
|Construction Output s.a. (MoM) (NOV)||1.2%||-2.0%|
|Industrial Production (MoM) (NOV)||0.2%||-0.1%|
|Purchasing Manager Index Composite (DEC)||57.4||55.2|
However, the slowdown in business output may drag on the U.K. labor market, and the BoE may look to further delay normalizing monetary policy as the majority of the MPC remains in no rush to raise the benchmark interest rate off of the record-low.
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
Potential Price Targets For The Release
Chart - Created Using FXCM Marketscope 2.0
- Long-term outlook for GBP/USD remains bearish as price & RSI retain the bearish trends carried over from 2014.
- Interim Resistance: 1.5300 (23.6% retracement) to 1.5320 (38.2% retracement)
- Interim Support: 1.5030 (23.6% expansion) to 1.5033 (January low)
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Impact that the U.K. Employment Change has had on GBP during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|NOV 2014||12/17/2014 9:30 GMT||-20.0K||-26.9K||0||-136|
November 2014 U.K. Employment Change
U.K. Jobless Claims declined another 26.9K in November following a 25.1K contraction the month prior, while the ILO Unemployment Rate held steady at an annualized 6.0% for the third consecutive month. Wage growth also picked up to an annualized rate of 1.4% during the same period to mark the fourth straight rise. Despite the ongoing improvement in the labor market, it seems as though the Bank of England (BoE) remains in no rush to normalize monetary policy as the central bank struggles to achieve the 2% target for inflation. The bullish reaction in GBP/USD was short-lived as the pair pulled back towards the 1.5700 handle, and the sterling continued to lose ground throughout the North American trade as the pair ended the day at 1.5572.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail firstname.lastname@example.org. Follow me on Twitter at @DavidJSong.
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