GBP/USD Rebound to Succumb to Dismal U.K. Jobless Claims Report
- 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.
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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
|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
|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
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||Pips Change|
|10/14/2015 08:30 GMT||-2.2K||4.6K||+44||+173|
September 2015 U.K. Jobless Claims Change
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.
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--- Written by David Song, Currency Analyst and Shuyang Ren
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