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GBP/USD to Hold Above May Low on Upbeat U.K. Mortgage Applications

GBP/USD to Hold Above May Low on Upbeat U.K. Mortgage Applications

2015-09-29 04:00:00
David Song, ShuyangRen,
Share:

- U.K. Jobless Claims to Expand at Faster Pace for Third Consecutive Month.

- A 69.8K Expansion Would Mark the Highest Reading Since February 2014.

Trading the News: U.K. Mortgage Approvals

A further expansion in U.K. Mortgage Approvals may boost the appeal of the British Pound and spark a near-term rebound in GBP/USD as signs of a stronger recovery puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD to Hold Above May Low on Upbeat U.K. Mortgage Applications

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the ongoing 8-1 split within the Monetary Policy Committee (MPC), data prints boosting the outlook for growth/inflation may spur a greater dissent at the October 8 policy meeting, and Governor Mark Carney may continue to prepare U.K. households and businesses for higher borrowing-costs as the economy gets on a more sustainable path.

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Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Retail Sales ex Auto Fuel (MoM) (AUG)

0.1%

0.1%

Employment Change (3Mo3M) (JUL)

18K

42K

Average Weekly Earnings ex. Bonus (3MoY) (JUL)

2.9%

2.9%

The resilience in private consumption accompanied by the improvements in the labor markets may generate greater demand for home loans, and a marked pickup in household lending may encourage the BoE to adopt a more hawkish outlook as the central bank remains on course to normalize monetary policy.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

BBA Loans for House Purchases (AUG)

47000

46743

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

0.5%

-1.0%

Markit Purchasing Manager Index- Construction (AUG)

57.5

57.3

However, the slowdown in building activity accompanied by the weakening outlook for global growth may drag on U.K. mortgage approvals, and a dismal development may produce a further decline in GBP/USD as it pushes out expectations for a BoE rate hike.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Mortgage Applications Expand Annualized 69.8K 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.

Bearish GBP Trade: U.K. Private-Sector Lending Disappoints

  • 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: GBP OBV Leads The Way Again

GBPJPY Reversal Setup- Short Scalps Eye 182

Potential Price Targets For The Release

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Failure to preserve the monthly opening range raises the risk for a further decline in GBP/USD, and the pair may continue to give back the advance from April as the bearish formation in the Relative Strength Index (RSI) remains in play.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since August 21, but the ratio approaches recent extremes as it widens to +2.85, with 74% 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)

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Impact that the U.K. Mortgage Approvals 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

09/01/2014 08:30 GMT

68.1K

68.8K

-7

-11

July 2015 U.K. Mortgage Approvals

GBP/USD Chart

U.K. Mortgage Approvals unexpectedly rose to an annualized 68.8K in Julyafter expanding a revised 67.1K the month prior to mark the highest reading since February 2014. The better-than-expected print may put increased pressure on the Bank of England (BoE) to switch gears over the coming months, but the slowdown in the global growth accompanied by the disinflationary environment across the major industrialized economies may keep the central bank on the sidelines throughout 2015 amid the 8-1 split within the committee. Despite the initial downtick in GBP/USD following the data print, the pair largely consolidated throughout the European trade to end the session at 1.5338.

--- 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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