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GBP/USD Breakout to Accelerate Strong U.K. Job/Wage Growth

GBP/USD Breakout to Accelerate Strong U.K. Job/Wage Growth

David Song, Shuyang Ren,

- U.K. Jobless Claims to Contract for 27th Consecutive Month in January.

- Wage Growth to Expand an Annualized 1.7% for Second Straight Month.

Trading the News: U.K. Jobless Claims Change

Another 25.0K contraction in U.K. Jobless Claims may encourage an improved outlook for the real economy, but the lack of stronger wage growth may generate a limited market reaction in GBP/USD as the Bank of England (BoE) remains in no rush to normalize monetary policy.

What’s Expected:

GBP/USD Jobless Claims

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Why Is This Event Important:

As a result, the BoE may retain a wait-and-see approach throughout the first-half of 2015, and we may continue to see a unanimous vote to preserve the current policy until there’s a sharp rise in household earnings.

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Expectations: Bullish Argument/Scenario

ReleaseExpectedActual
GfK Consumer Confidence (JAN)-21
Retail Sales ex Auto (MoM) (DEC)-0.7%0.2%
CBI Business Optimism (JAN)--15

Improved confidence paired with the resilience in private consumption may generate a stronger-than-expected job/wage growth report, and a positive development may spur a bullish reaction in GBP/USD as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

ReleaseExpectedActual
Construction Output s.a. (MoM) (DEC)2.7%0.4%
Industrial Production (MoM) (DEC)-0.1%-0.2%
Gross Domestic Product (QoQ) (4Q A)0.6%0.5%

However, waning business outputs along with the slowdown in building activity may drag on hiring, and a dismal employment report may trigger a near-term pullback in the British Pound as it raises the BoE’s scope to retain the highly accommodative policy stance for an extended period of time.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Claims Decline 25.0K or Greater Accompanied by Stronger Wages

  • 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 Report Misses Market Expectations

  • 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:

AUDUSD Candles and Channels Create Concern (for bears)

Retail Crowd Remains Net-Short EUR/USD- GBP Retains Bullish Momentum

Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD looks poised for a larger recover as it breaks out of the bearish trend/momentum carried over from back in July.
  • Interim Resistance: 1.5500 pivot to 1.5520 (38.2% expansion)
  • Interim Support: 1.5250 (100% expansion) to 1.5270 (38.2% retracement)

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Impact that the U.K. Jobless Claims Change has had on GBP during the last release

PeriodData ReleasedEstimateActualPips ChangePips Change

DEC

2014

01/21/2014 9:30 GMT-25.0K-29.7K0-136

December 2014 U.K. Jobless Claims Change

U.K. Jobless Claims fell more-than-expected as the figure shrank another 29.7K in December, while the ILO Unemployment Rate declined to a 6-year low of 5.8% during the three-months through November. Wage growth outpaced the headline reading for inflation, with Average Weekly Earnings expanding an annualized 1.7% during the same period. Despite the ongoing improvement in the labor market, it seems as though the Bank of England (BoE) will preserve its neutral stance as the central bank curbs its near-term outlook for inflation. Nevertheless, the better-than-expected print failed to spur a meaningful reaction in GBP/USD, with the pair largely advancing during the North American trade to end the day at 1.6480.

--- 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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