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Robust U.K. Job/Wage Growth to Foster Larger GBP/USD Recovery

Robust U.K. Job/Wage Growth to Foster Larger GBP/USD Recovery

David Song, Strategist

- U.K. Jobless Claims to Increase for Fifth Consecutive Month.

- Average Weekly Earnings to Climb Annualized 2.3%- Highest Since October.

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 9.0K in July, signs of stronger wage growth may keep the British Pound afloat, with GBP/USD at risk of staging a larger recovery should the data tame market expectation for additional monetary support.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

The Bank of England (BoE) is widely anticipated to further embark on its easing cycle this year as ‘a majority of members expect to support a further cut in Bank Rate to its effective lower bound,’ but the central bank may move to the sidelines after delivering the comprehensive easing packing earlier this month especially as Governor Mark Carney rules out a zero-interest rate policy (ZIRP) for the U.K.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

BRC Like-for-Like (YoY) (JUL)

-0.7%

1.1%

Net Consumer Credit (JUN)

1.4B

1.8B

Gross Domestic Product (YoY) (2Q A)

2.1%

2.2%

Even though ‘Brexit’ clouds the fundamental outlook for the region, signs of resilience in the U.K. economy accompanied by strong wage growth may spark a bullish reaction in GBP/USD and encourage the BoE to retain the current policy at the September 15 meeting especially as the central bank sees a risk of overshooting the 2% inflation-target over the policy horizon.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance (JUN)

-2.550B

-5.084B

Manufacturing Production (MoM) (JUN)

-0.2%

-0.3%

CBI Business Optimism (JUL)

-15

-47

Nevertheless, waning business sentiment paired with the weakening outlook for global growth may drag on the labor market, and a dismal employment report may drag on the British Pound as market participants boost bets for additional monetary support.

How To Trade This Event Risk(Video)

Bullish GBP Trade: U.K. Job/Wage Growth Picks Up

  • 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: 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 the opposite direction.

Potential Price Targets For The Release

GBP/USD Daily

Robust U.K. Job/Wage Growth to Foster Larger GBP/USD Recovery
  • Broader outlook for GBP/USD remains tilted to the downside as it breaks down from the wedge/triangle formation carried over from late-June, with both price and the Relative Strength Index (RSI) largely preserving a bearish formation, but the pair may stage a large recovery over the coming days as it appears to have marked a failed run at the 2016 low (1.2788).
  • 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/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 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)

JUN

2016

07/20/2016 08:30 GMT

3.5K

0.4K

+87

+104

June 2016 U.K. Jobless Claims Change

GBP/USD 5-Minute

GBP/USD Chart

U.K Jobless Claims unexpectedly climbed for a second consecutive month in June, with the report highlight another 0.4K advanced following a revised 12.2K expansion in May. At the same time, the headline reading for U.K. wage growth advanced an annualized 2.3% during the three-months through May after expanding 2.0% the month prior, while Weekly Earnings excluding Bonus narrowed to 2.2% from 2.3% during the same period. The British Pound gained ground following the report, with GBP/USD coming off of the 1.3100 handle to end the day at 1.3200.

Get our top trading opportunities of 2016 HERE

Read More:

USD/CAD Technical Analysis: Macro Now Favoring a Breakdown?

Gold Prices Wedging into Consolidation Near Resistance

USDOLLAR Short Term Technical Update

S&P 500: Notches New Record High, Short-term Techs in Focus

--- 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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