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GBP/USD: Trading the U.K. Jobless Claims Report

GBP/USD: Trading the U.K. Jobless Claims Report

2015-03-18 00:00:00
David Song, Shuyang Ren,
Share:

- 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.

What’s Expected:

GBP/USD Jobless Claims Change

Click Here for the DailyFX Calendar

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

Release

Expected

Actual

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

Release

Expected

Actual

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

Read More:

Scalp Webinar: USD, GBP Crosses in Focus Ahead of FOMC

COT-Largest Commercial Hedger Long Position in AUD on Record

Potential Price Targets For The Release

GBP/USD Daily Chart

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

(1 Hour post event )

Pips Change

(End of Day post event)

JAN

2015

02/18/2015 9:30 GMT

-25.0K

-38.6K

+62

+73

January 2015 U.K. Jobless Claims Change

GBP/USD Chart

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 dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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