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Stronger U.K. Wage Growth to Encourage Larger GBP/USD Advance

Stronger U.K. Wage Growth to Encourage Larger GBP/USD Advance

David Song, Strategist

- U.K. Jobless Claims to Increase for Second Consecutive Month in April.

- Average Weekly Earnings ex. Bonus to Uptick for First Time Since December.

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

Trading the News: U.K. Jobless Claims Change

Even though U.K. Jobless Claims are projected to increase another 4.5K in April, stronger wage growth may spark a bullish reaction in GBP/USD as it puts greater pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

The BoE looks poised to retain its current policy ahead of the U.K. Referendum on June 23, but the central bank may show a greater willingness to remove the record-low interest rate over the coming months as Governor Mark Carney and Co. remain adamant that the next move will be to implement higher borrow-costs.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

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

-3.2%

-3.6%

Manufacturing Production (MoM) (MAR)

0.3%

0.1%

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

-0.3%

-1.6%

Easing business outputs accompanied by the slowdown in household consumption may drag on the labor market, and a dismal employment report may undermine the near-term rebound in GBP/USD as it dampens interest-rate expectations.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Trade Balance (MAR)

-4.200B

-3.830B

Net Consumer Credit (MAR)

1.3B

1.9B

Gross Domestic Product (YoY) (1Q A)

2.0%

2.1%

Nevertheless, the pickup in private-sector lending paired with signs of a stronger-than-expected report may boost job/wage growth in the U.K., and a positive development may spark a bullish reaction in the sterling as market participants pull up bets for a BoE rate-hike.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. Employment Report Disappoints

  • 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

GBPUSD Daily

GBP/USD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • GBP/USD appears to have made an unsuccessful attempt to break out of the downward trend carried over from August as the Relative Strength Index (RSI) fails to preserve the bullish momentum from earlier this year, and the pair may continue to consolidate ahead of the U.K. Referendum as it remains stuck in a broader wedge/triangle formation.
  • Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
  • Interim Support: 1.3870 (78.6% expansion) and 1.3960 (50% expansion)

Check out the short-term technical levels that matter for GBP/USD heading into the report!

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)

MAR

2016

04/20/2016 08:30 GMT

-10.0K

6.7K

+15

-41

March 2016 U.K. Jobless Claims Change

GBP/USD Chart

U.K. Jobless Claims unexpectedly increased 6.7K in March after contracting a revised 9.3K the month prior, while the Unemployment Rate under the International Labour Organization’s (ILO) methodology held steady at an annualized 5.1% for the fourth consecutive month in February. Moreover, Average Weekly Earnings excluding bonuses grew an annualized 2.2% in February amid forecasts for a 2.1% print, and signs of stronger price growth may push the Bank of England (BoE) to adopt a more hawkish tone over the coming months as Governor Mark Carney and Co. see a risk of overshooting the 2% inflation-target over the policy horizon. Despite the uptick in jobless claims, GBP/USD climbed above the 1.4400 handle during the European trade, but the advance was short-lived as the pair ended the day at 1.4327.

Get our top trading opportunities of 2016 HERE

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Read More:

USD/CHF Rally? It Just MAY

Gold Bulls Look to CPI, Fed Minutes for Solace

DailyFX Technical Focus: Short Term S&P and Gold Analysis

USD/CAD Technical Analysis: Time For Bulls To Prove Their Worth

--- Written by David Song, Currency Analyst

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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