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GBP/USD to Face Larger Rebound on Upbeat U.K. Job/Wage Report

GBP/USD to Face Larger Rebound on Upbeat U.K. Job/Wage Report

2016-03-16 04:00:00
David Song, Shuyang Ren,
Share:

- U.K. Jobless Claims to Contract for Fourth Consecutive Month.

- Average Weekly Earnings ex. Bonus to Climb to Annualized 2.1%- Highest Since September.

For more updates, sign up for David's e-mail distribution list.

Trading the News: U.K. Jobless Claims Change

Another 9.1K decline in U.K. Jobless Claims paired with signs of stronger wage growth may heighten the appeal of the British Pound and spur a near-term advance in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

GBP/USD UK Jobless Claims

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the EU referendum clouds the economic outlook for the U.K., a further improvement in labor-market dynamics may spur a split within the Bank of England (BoE) as central bank officials remain upbeat on the economy and see a risk of overshooting the 2% inflation-target over the policy horizon.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Visible Trade Balance (JAN)

-10.300B

-10.289B

Manufacturing Production (MoM) (JAN)

0.2%

0.7%

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

0.7%

2.3%

Improved demand from home and abroad may encourage U.K. firms to ramp up their labor force, and a marked pickup in job/wage growth may spark a near-term advance in Cable as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Markit Purchasing Manager Index- Services (FEB)

55.1

52.7

GfK Consumer Confidence (FEB)

3

0

Lloyds Business Barometer (FEB)

--

28

Nevertheless, waning confidence along with the slowdown in service-based activity may drag on employment, and a dismal labor report may produce near-term headwinds for the sterling as it market participants push out bets for a BoE rate-hike.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Job/Wage Growth Exceed Market Forecast

  • Need green, five-minute candle following the print to consider a long GBP/USD trade.
  • If market reaction favors buying sterling, long GBP/USD with two separate position.
  • Set stop at the near-by swing low/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.

Bearish GBP Trade: Jobless Claims, Average Hourly Earnings Disappoint

  • Need red, five-minute candle to favor a short GBP/USD trade.
  • Implement same setup as the bullish 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

  • Long-term outlook for GBP/USD remains tilted to the downside as the pair largely retains the downward trend from August, but there appears to be a divergence in the Relative Strength Index (RSI) as the oscillator carves a higher-low in February and threatens the bearish formation carried over from the previous year.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot

Check out theshort-term technical levels that matter for GBP/USD heading into the key events!

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

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)

JAN

2016

02/17/2016 09:30 GMT

-3.0K

-14.8K

+45

+0

January 2016 U.K. Jobless Claims Change

GBP/USD Chart

The U.K. labor report beat market expectations in January, with Jobless Claims contracting another 14.8K, while the International Labor Organization’s (ILO) gauge for unemployment heldsteady at an annualized 5.1% during the three-months through December. At the same time, the headline reading for U.K.wage growth slowed to annualized 1.9% from a revised 2.1% in November to mark the lowest reading since February 2015, while Average Weekly Earnings excluding bonuses unexpectedly climbed 2.0% during the same period amid forecasts for a 1.8% print. Despite the ongoing improvement in the labor market, the Bank of England may continue to delay its normalization cycle as the EU referendum clouds the economic outlook for the U.K. The sterling snapped back following the better-than-expected prints, with GBP/USD climbing above the 1.4300 handle, but the market reaction was short-lived as the pair closed the day at 1.4286.

Read More:

Long-term Low in Silver?

Long Term Cyclical Influence Nears for AUD/USD

Another Big Test Awaits USD/CAD

DailyFX Technical Focus: Nikkei 225 at Resistance

Get our top trading opportunities of 2016 HERE

--- 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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