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Stronger U.K. Job/Wage Growth to Foster GBP/USD Rebound

Stronger U.K. Job/Wage Growth to Foster GBP/USD Rebound

David Song, Strategist

- U.K. Jobless Claims to Increase for Third Time in 2016.

- Average Weekly Earnings ex. Bonus to Climb Annualized 2.4%- Highest Since September.

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 4.0K in June, another pickup in household earnings may generate a bullish reaction in GBP/USD as it highlights an improved outlook for growth and inflation.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

Signs of stronger wage growth may prompt the Bank of England (BoE) to retain its current policy at the next interest-rate decision on August 4 as the central bank runs the risk of overshooting the 2% inflation-target, and Governor Mark Carney may attempt to buy more time even as the U.K. prepares to leave the European Union (EU).

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Manufacturing Production (YoY) (MAY)

0.4%

1.7%

Index of Services (3Mo3M) (APR)

0.4%

0.5%

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

0.3%

1.0%

Increased consumption accompanied by the expansion in business outputs may boost job/wage growth in the U.K., and a positive development may generate a near-term rebound in GBP/USD as it encourages the BoE to preserves a wait-and-see approach.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Rightmove House Prices (MoM) (JUL)

--

-0.9%

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

-1.2%

-2.1%

Lloyds Business Barometer (JUN)

--

6

Nevertheless, the spillover effects from ‘Brexit’ may drag on the labor market as it clouds the economic outlook with increased uncertainty, and a series of dismal data prints may drag on the sterling as it fuels bets for additional monetary support.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Job/Wage Growth Picks Up in June

  • 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: U.K. Labor Market Report Fails to Meet Market Forecast

  • 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

GBP/USD Daily

GBP/USD Daily Chart
  • The string of failed attempts to closes back above 1.3360 (50% expansion) to 1.3370 (78.6% expansion) may invalidate the inverse head-and-shoulders formation carried over from the previous month, with the pair at risk of giving back the rebound from 1.2788 as the pair appears to be carving a near-term high.
  • Key Resistance: 1.4880 (50% retracement) to 1.4930 (38.2% expansion)
  • Key Support: 1.2460 (61.8% expansion) to 1.2500 pivot

Check out the short-term technical levels that matter for GBP/JPY 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 Report 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)

MAY

2016

06/15/2016 08:30 GMT

0.0K

-0.4K

+12

+21

May 2016 U.K. Jobless Claims Change

GBP/USD 5-Minute

GBP/USD Chart

U.K Jobless Claims slipped 0.4K in May after expanding a revised 6.4K the month prior, while the International Labour Organizations gauge for unemployment unexpectedly narrowed to an annualized 5.0% from 5.1% in March. At the same time, Average Weekly Earnings excluding Bonuses unexpectedly climbed an annualized 2.3% in April after expanding a revised 2.2% during the previous month, and the rise in household earnings may boost the fundamental outlook for the U.K. as private-sector consumption remains one of the leading drivers of growth and inflation. The initial market reaction was short-lived, with GBP/USD pulling back from 1.4210 to end the day at 1.4202.

Get our top trading opportunities of 2016 HERE

Read More:

Technical Focus: Copper Base Still a Work in Progress

Silver Prices: Spiral Higher Triggers Historical Momentum Readings

USD/CAD Technical Analysis: Looking Ready To Claw-Back H1 Losses

USD/JPY Technical Analysis: The Proverbial Falling Knife

--- 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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