Stronger U.K. Job/Wage Growth to Foster GBP/USD Rebound
- U.K. Jobless Claims to Increase for Third Time in 2016.
- Average Weekly Earnings ex. Bonus to Climb Annualized 2.4%- Highest Since September.
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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.
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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
|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
|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
- 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!
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Impact that the U.K. Jobless Claims Report has had on GBP during the last release
|Period||Data Released||Estimate||Actual||Pips Change||Pips Change|
|06/15/2016 08:30 GMT||0.0K||-0.4K||+12||+21|
May 2016 U.K. Jobless Claims Change
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.
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--- Written by David Song, Currency Analyst
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