- 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

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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.

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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)

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:

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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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