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Stagnant U.K. Household Earnings to Fuel GBP/USD Weakness

Stagnant U.K. Household Earnings to Fuel GBP/USD Weakness

2017-10-18 04:00:00
David Song, Strategist
Share:

- U.K. Employment to Increase Another 150K in Three-Months Through August.

- Average Weekly Earnings to Hold Steady at Annualized 2.1% for Third Consecutive Month.

- DailyFX 4Q 2017 Forecasts Are Now Available!

Trading the News: U.K. Employment Change

U.K. Employment Change

In light of the market reaction to the U.K. Consumer Price Index (CPI), another batch of lackluster data prints may continue to rattle the near-term rebound in GBP/USD as it saps bets for higher interest rates.

Even though BoE Governor Mark Carney warns the central bank will deliver a rate-hike over the ‘coming months,’ the majority of the Monetary Policy Committee (MPC) may largely endorse a wait-and-see approach at the next meeting on November 2 as ‘it was too soon to judge whether stronger consumption growth would be sufficient to offset continuing weakness in business investment.’ In turn, the BoE may carry the record-low interest rate into 2018 as ‘the squeeze on households’ real income continued to weigh on consumption.’

Nevertheless, we may see a growing rift within the BoE as officials argue ‘a 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 last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL

2017

09/13/2017 08:30:00 GMT

150K

180K

-25

-88

July 2017 U.K. Employment Change

GBP/USD 5-Minute Chart

GBP/USD Chart

The U.K. added another 180K jobs in July, while the Unemployment Rate unexpectedly narrowed to an annualized 4.3% from 4.4% during the same period. Despite the ongoing improvement in the labor market, Average Weekly Earnings held steady at an annualized 2.1% amid forecasts for a 2.3% print, and signs of subdued wage growth may encourage the Bank of England (BoE) to further delay the normalization cycle especially as Brexit clouds the economic outlook with high uncertainty. The batch of mixed data prints weighed on the British Pound, with GBP/USD pulling back from the 1.3300 handle to end the day at 1.3208.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. Household Earnings Remains Subdued

  • Need a red, five-minute candle following the release to favor a short GBP/USD trade.
  • If market reaction favors a bearish Pound position, 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: Job, Wage Growth Exceeds Market Forecast

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

Potential Price Targets For The Release

GBP/USD Daily Chart

GBP/USD Daily Chart
  • Downside targets are back on the radar for GBP/USD as it comes off of the Fibonacci overlap around 1.3300 (100% expansion) to 1.3320 (38.2% retracement) and initiates a fresh series of lower highs & lows; Relative Strength Index (RSI) also highlights a similar dynamic as the oscillator turns ahead of trendline resistance.
  • Break/close below the 1.3090 (38.2% retracement) to 1.3120 (78.6% retracement) region opens up the monthly-low (1.3027), with the next downside region of interest coming in around 1.2950 (23.6% expansion) to 1.2960 (78.6% expansion).
  • 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 55.8% of traders are net-long GBP/USD with the ratio of traders long to short at 1.26 to 1. The number of traders net-long is 19.6% higher than yesterday and 4.3% lower from last week, while the number of traders net-short is 5.0% lower than yesterday and 5.3% 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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