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GBP/USD Risks Further Losses on Lackluster U.K. Employment Report

GBP/USD Risks Further Losses on Lackluster U.K. Employment Report

David Song, Strategist

- U.K. Average Hourly Earnings Ex. Bonus to Hold Steady at Annualized 2.0%.

- Employment to Grow Less Than 100K for First Time Since February.

- Sign Up & Join DailyFX Market Analyst Martin Essex LIVE to Cover the U.K. Employment Report.

Trading the News: U.K. Employment Change

U.K. Employment

A slowdown in U.K. Employment accompanied by signs of stagnant wage growth may trigger a bearish reaction in GBP/USD as it encourages the Bank of England (BoE) to preserve the record-low interest rate throughout 2017.

With Sir David Ramsden joining the Monetary Policy Committee (MPC) at the next meeting on September 14, lackluster developments coming out of the U.K. economy may generate a 7 to 2 split as recent data prints highlight a narrowing threat for above-target inflation. However, a further improvement in labor market dynamics may spur a greater dissent within the BoE as ‘the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.’

Impact that the U.K. Employment report has had on GBP/USD during the previous print

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY

2017

07/12/2017 08:30:00 GMT

120K

175K

+27

+53

May 2017 U.K. Employment Change

GBP/USD 10-Minute

GBP/USD Chart

The U.K. economy added 175K jobs during the three-months through May, with the jobless rate unexpectedly narrowing to an annualized 4.5% from 4.6% in April. A deeper look at the report showed Average Weekly Earnings excluding Bonuses climb an annualized 2.0% during the same period amid forecasts for a 1.9% print, while Jobless Claims climbed another 5.9K in June after expanding a revised 7.7K the month prior. The British Pound gained ground following the batch of positive developments, with GBP/USD climbing above the 1.2850 region to end the day at 1.2884.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. Job & Wage Growth Hold Steady in June

  • Need a red, five-minute candle following the release to favor a short GBP/USD position.
  • If market reaction favors a bearish British Pound trade, sell GBP/USD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish GBP Trade: Employment Report Continues to Exceed Market Forecasts

  • Need a green, five-minute GBP/USD candle to favor a long British Pound position.
  • Carry out the same setup as the bearish Sterling trade, just in the opposite direction.

Potential Price Targets For The Release

GBP/USD Daily

GBP/USD Daily Chart

Chart - Created Using Trading View

  • GBP/USD stands at risk for further losses as the pair fails to retain the narrow range carried over from the previous week and makes a more meaningful attempt to break the upward trend from May.
  • Downside targets remain on the radar as GBP/USD initiates a series of lower highs & lows, with a break/close below the 1.2860 (61.8% retracement) hurdle to open up the next area of interest around the 1.2800 handle (50% expansion) followed by the Fibonacci overlap around 1.2630 (38.2% expansion) to 1.2680 (50% retracement), which largely lines up with the 200-Day SMA (1.2638).
  • Interim Resistance: 1.3460 (50% retracement) to 1.3481 (July 2016-high)
  • Interim Support: 1.2630 (38.2% expansion) to 1.2680 (50% retracement)

GBP/USD Retail Sentiment

GBP/USD Retail Sentiment

Track Retail Sentiment in Real-Time with the New Gauge Developed by DailyFX

Retail trader data shows 53.4% of traders are net-long GBP/USD with the ratio of traders long to short at 1.15 to 1. The percentage of traders net-long is now its highest since June 13 when GBP/USD traded near 1.27477. The number of traders net-long is 13.4% higher than yesterday and 24.9% higher from last week, while the number of traders net-short is 7.9% lower than yesterday and 23.5% lower from last week.

--- 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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