GBP/USD: Trading the U.K. Jobless Claims Report
- U.K. Jobless Claims to Contract for 28th Consecutive Month in February.
- Wages to Expand an Annualized 2.2%- Fastest Pace of Growth Since June 2013.
Trading the News: U.K. Jobless Claims Change
Another 30.0K decline in U.K. Jobless Claims paired with a hawkish Bank of England (BoE) Minutes may spark a near-term rebound in GBP/USD should the fundamental developments boost interest rate expectations.
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Why Is This Event Important:
At the same time, Average Weekly Earnings are projected to increase an annualized 2.2% after climbing 2.1% in January, and a marked expansion in household earnings may encourage BoE Governor Mark Carney to normalize monetary policy sooner rather than later as the central bank anticipates a more sustainable recovery in the U.K economy.
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Expectations: Bullish Argument/Scenario
|Markit Purchasing Manager Index (FEB)||53.3||54.1|
|Producer Price Index- Input n.s.a. (YoY) (JAN)||-11.9%||-14.2%|
|CBI Business Optimism (JAN)||--||15|
Falling input costs paired with the pickup in business confidence may spark a marked expansion in job/wage growth, and a positive development may heighten the appeal of the British Pound as the BoE largely remains on course to normalize monetary policy over the medium-term.
Risk: Bearish Argument/Scenario
|Construction Output s.a. (MoM) (JAN)||1.3%||-2.6%|
|Manufacturing Production (MoM) (JAN)||0.2%||-0.5%|
|Mortgage Approvals (JAN)||61.0K||60.8K|
However, the slowdown in building activity along with the pullback in business outputs may drag on hiring, and a dismal labor report may push Governor Carney to further delay the normalization cycle in an effort to encourage a stronger recovery.
How To Trade This Event Risk(Video)
Bullish GBP Trade: Claims Slip 30.0K or More 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: Labor Report Fails to Meet 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
Potential Price Targets For The Release
GBP/USD Daily Chart
Chart - Created Using FXCM Marketscope 2.0
- The near-term rebound in the RSI may pave the way for a larger rebound in GBP/USD as the oscillator comes off of oversold territory.
- Interim Resistance: 1.5000 pivot to 1.5020 (50% expansion)
- Interim Support: 1.4700 pivot to 1.4710 (78.6% expansion)
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Impact that the U.K. Jobless Claims Change has had on GBP during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|02/18/2015 9:30 GMT||-25.0K||-38.6K||+62||+73|
January 2015 U.K. Jobless Claims Change
U.K. Jobless Claims decline another 38.6K in January following the revised 35.8K contraction the month prior. The unemployment rate subsequently fell to 5.7% in three-months through November, reaching the lowest level since September 2008. In addition, private wages grew more-than-expected over the last quarter at an annualized rate of 2.1% amid forecasts for a 1.7% print. The ongoing improvement in the U.K. labor market may encourage the Bank of England (BoE) to retain a hawkish tone for monetary policy as the central bank anticipates stronger wage growth in 2015. The sterling gained ground following slew of positive prints, with GBP/USD breaking above the 1.5400 handle to end the day at 1.5444.
--- Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail email@example.com. Follow me on Twitter at @DavidJSong.
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