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GBP/USD Rebound to Succumb to Dismal U.K. Jobless Claims Report

GBP/USD Rebound to Succumb to Dismal U.K. Jobless Claims Report

2015-11-11 04:00:00
David Song, Shuyang Ren,
Share:

- U.K. Jobless Claims to Increase for Third-Consecutive Month.

- ILO Unemployment Rate to Hold Steady at 5.4%- Lowest Since 2008.

Trading the News: U.K. Jobless Claims Change

Another 1.4K expansion in U.K. Jobless Claims accompanied by slower wage growth may spur a bearish reaction in the British Pound and generate fresh monthly lows in GBP/USD as it raises the Bank of England’s (BoE) scope to further delay its normalization cycle.

What’s Expected:

GBP/USD UK Jobless Claims

Click Here for the DailyFX Calendar

Why Is This Event Important:

U.K. data prints pointing to slower growth may drag on interest rate expectations, and BoE Governor Mark Carney may continue to highlight a cautious outlook for the region amid the easing cycle in the euro-area, while its U.S. counterpart stands ready and willing to implement higher borrowing-costs in 2015.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (SEP)

72.4K

2..4%

Gross Domestic Product (YoY) (3Q A)

2.4%

2.3%

CBI Business Optimism (OCT)

2

-12

Waning confidence paired with the slowdown in private-sector credit may drag on the labor market, and a dismal employment report may produce near-term headwinds for the sterling as market participants push out bets for a BoE rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance (SEP)

-3.000B

-1.353B

Manufacturing Production (MoM) (SEP)

0.6%

0.8%

Retail Sales ex Auto Fuel (MoM) (SEP)

0.4%

1.7%

Nevertheless, improved demand from home and abroad may encourage U.K. firms to boost their work-force, and a positive development may push the Monetary Policy Committee (MPC) to remove the record-low interest rate in 2016 as the central bank sees a growing risk of overshooting the 2% target for inflation.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. Employment Report Drags on Interest Rate Expectations

  • Need red, five-minute candle following the print to consider a short GBP/USD trade.
  • If market reaction favors selling sterling, short GBP/USD with two separate position.
  • Set stop at the near-by swing high/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 Exceed Market Forecast

  • Need green, five-minute candle to favor a long GBP/USD trade.
  • Implement same setup as the bearish British Pound trade, just in reverse.

Potential Price Targets For The Release

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • After carving a lower-high in October, downside targets remain in focus for GBP/USD especially as the Relative Strength Index (RSI) largely retains the bearish formation carried over from back in May.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since August 21, but the ratio remains off of recent extremes as it narrows to +1.96%, with 66% of traders long.
  • Interim Resistance: 1.5460 (23.6% retracement) to 1.5508 (October high)
  • Interim Support: 1.4860 (78.6% retracement) to 1.4910 (61.8% retracement)

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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)

SEP

2015

10/14/2015 08:30 GMT

-2.2K

4.6K

+44

+173

September 2015 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims unexpectedly increased another 4.6K in September after climbing 1.2K the month prior, while the International Labour Organization’s (ILO) gauge for unemployment slipped to a 7-year low of 5.4% during the three-months through August. Moreover, average weekly earnings cooled to an annualized 2.8% from 2.9% in August, and the slowdown in job/wage growth may push the Bank of England (BoE) to further delay its normalization cycle amid the weakening outlook for global growth. The bearish reaction in GBP/USD was short-lived, with the pound-dollar bouncing from the 1.5300 handle to end the day at 1.5475.

Read More:

COT - Silver Over Owned

EUR/USD Continues to Chip Away April Rebound Ahead of Draghi Comments

GBP/JPY Technical Analysis: From One Trend to Another

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link

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