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GBP/USD to Extend Losses on Dismal Job/Wage Report

GBP/USD to Extend Losses on Dismal Job/Wage Report

2016-02-17 04:00:00
David Song, Shuyang Ren,
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- U.K. Jobless Claims to Contract for Third Consecutive Month.

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

Trading the News: U.K. Jobless Claims Change

Despite forecasts for another 3.0K decline in U.K. Jobless Claims, a further slowdown in Average Weekly Earnings may weigh on the sterling and spark a bearish reaction in GBP/USD as it provides the Bank of England (BoE) with greater scope to retain its current policy throughout 2016.

What’s Expected:

GBP/USD Jobless Claims

Click Here for the DailyFX Calendar

Why Is This Event Important:

Following the unanimous vote to retain the current policy, signs of slower wage growth may encourage the BoE to endorse a wait-and-see approach at the next meeting on March 17 as Governor Mark Carney & Co. reduce their economic projections and turn increasing cautious towards the U.K. economy.

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Expectations: Bearish Argument/Scenario

Release

Expected

Actual

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

2.0%

1.5%

Manufacturing Production (MoM) (DEC)

0.1%

-0.2%

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

-0.3%

-0.9%

Easing outputs accompanied by the slowdown in household spending may drag on the U.K. labor market, and a dismal Jobless Claims print may produce near-term headwinds for the sterling as market participants push back bets for a BoE rate-hike.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Mortgage Approvals (DEC)

69.6K

70.8K

GfK Consumer Confidence (JAN)

1

4

CBI Business Optimism (JAN)

--

-4

Nevertheless, improved confidence paired with the ongoing expansion in private-sector lending may generate a stronger-than-expected job/wage report, and a positive development may foster a near-term rebound in GBP/USD as it puts increase pressure on the BoE to remove the record-low interest rate in 2016.

How To Trade This Event Risk(Video)

Bearish GBP Trade: Jobless Claims, Average Hourly Earnings Disappoint

  • 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 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.

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Potential Price Targets For The Release

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD may continue to give back the rebound from 1.4078 as it struggles to retain the range-bound price action from earlier this month, while the Relative Strength Index (RSI) breaks down from the bullish formation carried over from January.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot

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GBP/USD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since November 19, with positioning climbing to an extreme in January as the ratio pushed above +3.00.
  • Retail FX positioning appears to be moving back towards recent extremes as to pushes to +2.41, with 71% of traders now long.

Why and how do we use the SSI in trading? View our video and download the free indicator here

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)

DEC

2015

01/20/2016 09:30 GMT

2.8K

-4.3K

+48

+58

December 2015 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims unexpectedly declined another 4.3K in December after contracting a revised 2.2K the month prior. The International Labor Organization’s (ILO) gauge for unemployment also surprised as the figure narrowed to an annualized 5.1% during the three-months through November to mark the lowest reading since January 2006. In contrast, wage pressures continued to abate as Average Weekly Earnings slipped to 2.0% from 2.4% in November. Despite the ongoing improvement in the labor market, the Bank of England (BoE) may largely endorse a wait-and-see approach throughout 2016 as the central bank struggles to achieve the 2% target for inflation. The sterling fluctuated in the region between 1.4150 and 1.4200 after the release, and GBP/USD closed the North American session at 1.4187.

Read More:

GBP/USD Breaks Down on Weak U.K. Core CPI; Retail FX Still Net-Long

EUR/USD – Breakout Hangs in the Balance

USD/JPY Technical Analysis: Best 2-Week Run For JPY Since 1998

Crude Oil Turn in the Pipeline?

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--- 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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