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GBP/USD Risks Further Losses on Slowing U.K. Job/Wage Growth

GBP/USD Risks Further Losses on Slowing U.K. Job/Wage Growth

2016-01-20 04:00:00
David Song, Shuyang Ren,
Share:

- U.K. Jobless Claims to Increase for Fifth-Consecutive Month in December.

- Average Weekly Earnings ex. Bonus to Slow to Annualized 1.8%- Lowest Since January 2015.

Trading the News: U.K. Jobless Claims Change

A 2.8K rise in U.K. Jobless Claims accompanied with another slowdown in wage growth may generate fresh 2016 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:

The recent comments from BoE Governor Mark Carney suggests that the Monetary Policy Committee (MPC) is in no rush to lift the benchmark interest rate off of the record-low, and the board may continue to endorse a wait-and-see approach at the next policy meeting on February 4 as the central bank head looks for signs of stronger inflation.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

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

0.5%

-0.5%

Manufacturing Production (MoM) (NOV)

0.1%

-0.4%

Gross Domestic Product (YoY) (3Q F)

2.3%

2.1%

Waning business outputs paired with the slowdown in building activity may drag on U.K. job growth, and a dismal employment report may exacerbate the recent sell-off in GBP/USD as market participants continue to push out bets for a BoE rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (NOV)

69.8K

70.4K

Net Consumer Credit (NOV)

1.3B

1.5B

Retail Sales ex. Auto Fuel (MoM) (NOV)

0.5%

1.7%

Nevertheless, the pickup in private-sector lending along with the rise in household spending may encourage U.K. firms to expand their labor force, and a positive development may spur a greater dissent within the BoE as central bank officials see a ‘solid’ recovery in the region.

How To Trade This Event Risk(Video)

Bearish GBP Trade: Jobless Claims Increase, Household Earnings Slide

  • 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: U.K. Job/Wage Growth Beat Market Expectations

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

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Potential Price Targets For The Release

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Longer-term outlook for GBP/USD remains tilted to the downside as price & the Relative Strength Index (RSI) retain the bearish formations carried over from the previous year; will continue to watch the downside especially as the oscillator pushes deeper into oversold territory and approaches the lowest level since September 2009.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long GBP/USD since November 19, but the ratio appears to be holding near recent extremes as it sits at +2.59, with 72% of traders now long.
  • Interim Resistance: 1.4860 (78.6% retracement) to 1.4910 (61.8% retracement)
  • Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot

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)

NOV

2015

12/16/2015 09:30 GMT

0.8K

3.9K

+5

+1

November 2015 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims increased another 3.9K in November following a revised 0.2K expansion the month prior while the International Labour Organization’s (ILO) gauge for unemployment unexpectedly slipped to a 7-year low of 5.2% during the three-months through October. Nevertheless, wage pressures continued to abate in October as Average Weekly Earnings ex. Bonus slipped to an annualized 2.0% amid forecasts for a 2.3% print. Despite the ongoing improvement in the labor market, easing wage pressures may prompt the Bank of England (BoE) to further delay its normalization cycle amid the external headwinds surrounding the U.K. economy. The market reaction was largely limited even as GBP/USD bounces back from a session low of 1.4983, with the pair closing the day at 1.4999.

Read More:

S&P 500 - Everybody Too Bearish Too Soon?

USDOLLAR Breakout Looks Hollow without EUR/USD Participation

Price & Time: GBP/USD: Is this only getting started?

Bearish EUR/USD: Eyeing New 2016 Lows

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

--- 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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