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Upbeat U.K. Job/Wage Growth to Offer GBP/USD Reprieve

Upbeat U.K. Job/Wage Growth to Offer GBP/USD Reprieve

2015-09-16 04:00:00
David Song, Shuyang Ren,
Share:

- U.K. Jobless Claims to Contract for Seventh Time in Last Eight-Months.

- Average Weekly Earnings ex-Bonus to Uptick to 2.9%- Highest Reading Since February 2009.

Trading the News: U.K. Jobless Claims Change

A 5.0K contraction in U.K. Jobless Claims along with signs of faster wage growth may generate a short-term rebound in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD Jobless Claims Change

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the U.K. continues to face subdued inflation, a pickup in household earnings may reinforce the BoE’s expectations for stronger price growth, and a series of positive developments may heighten the appeal of the sterling especially as a growing number of central bank officials prepare households & businesses for higher borrowing-costs.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Index of Services (MoM) (JUN)

0.4%

0.5%

CBI Reported Sales (AUG)

18

24

Retail Sales ex Auto Fuel (MoM) (JUL)

0.4%

0.4%

The rebound in retail sales paired with the expansion in service-based activity may prompt a further improvement in the U.K. labor market, and a batch of positive data prints may spark a bullish reaction in the British Pound as it boosts interest rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Construction Output s.a. (MoM) (JUL)

0.5%

-1.0%

Industrial Production (MoM) (JUL)

0.1%

-0.4%

Manufacturing Production (MoM) (JUL)

0.2%

-0.8%

However, slower production accompanied by the decline in building activity may drag on hiring, and a dismal development may continue to encourage an 8-1 split within the Monetary Policy Committee (MPC) as the central bank continues to gauge the spare capacity within the real economy.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Job/Wage Growth Picks Up in August

  • 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.

Bearish GBP Trade: Employment Report Falls Short of Market Forecast

  • 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: USD/JPY - Marking Time Until The Fed

USD/JPY Outlook Remains Mired Following BoJ- GBP Searches for Support

Potential Price Targets For The Release

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failure to push back above former soft support around 1.5460 (23.6% expansion) raises the risk for a further decline in GBP/USD especially as the downward trend in the Relative Strength Index (RSI) gathers pace.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since August 21, with ratio coming off of recent extremes to hold at +1.68, with 63% of traders long.
  • Interim Resistance: 1.5550 (61.8% expansion) to 1.5570 (38.2% retracement)
  • Interim Support: 1.5088 (May low) to 1.5090 (61.8% retracement)

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

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)

JUL

2015

08/12/2015 08:30 GMT

1.0K

-4.9K

-15

+20

July 2015 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims unexpectedly contracted 4.9K in July after increasing a revised 0.2K the month prior, declining to a 3-month low. Besides, the ILO Unemployment Rate unexpectedly remained flat at an annualized 5.6% during the three-months through July, while average weekly earnings growth fell to 2.4% from 3.2% in the three months through June due to lower bonuses. Despite the worse-than-expected prints, it seems that the Bank of England (BoE) keeps confident over the economic recovery and it will unlikely change the previous hawkish tone on monetary policy. The initial bearish reaction in sterling was short-lived, with GBP/USD surging above the 1.5650 region during the North American session. The pair came back later and closed the day at 1.5608.

--- 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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