GBP/USD Cracks Below 1.6800 Due to Job Data; Focus BoE Inflation Report
- UK ILO Unemployment Rate (3Mths) (Jun): 6.4% Actual Vs 6.4% Estimated; 6.5% Prior.
- UK Jobless Claims Change (Jul): -33.6K Actual Vs -30.0K Estimated; -39.5K Prior.
- GBP/USD Plunged to Trade Below 1.6800 After UK Average Earnings Missed Estimate.
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UK Jobless Claims, which measures the number of people who claim unemployment benefits but are actively seeking work, fell 33,600 in July versus a decline of 39,500 in June. Although the pace slowed compared to the prior month, the figure exceeded market expectations of a 30,000 decline for the month of July. Moreover, UK Unemployment Rate for the second-quarter came in at 6.4 percent and remained faithful to market forecast. This was a drop from 6.5 percent from the prior month reading. These data should be important to forex traders as higher job growth accompanies economic expansion and could spark inflationary pressures.
Ahead of the data, GBP/USD grinded higher to trade firmly above the critical 1.6800 level. Immediately after the release of the figures, the British Pound plunged against the US Dollar to break below the psychologically significant 1.6800 level and trade at 1.6794. The main catalyst that caused the slump for the currency pair, despite a drop in the unemployment rate, is due to UK 2Q Average Earnings declining for the first time since 2009 to -0.2 percent. This reading missed market estimated that called for a -0.1 percent.
Glancing ahead,Bank of England (BoE) Inflation Report will take center stage at 09:30 GMT, today. As GBP/USD faced five consecutive weeks of losses due to the evaporation in rate hike expectations, volatility risk is tilted to the upside for the pound says DailyFX Currency Strategist Ilya Spivak. DailyFX Currency Analyst David Song adds by saying BoE Governor Mark Carney will need to show a greater willingness to move away from their easing cycle, which will bode-well for the pound. Moreover, this willingness that may be revealed through a hawkish rhetoric by the BoE Chief may allow for GBP/USD to resume the upward trend carried over from the previous year.
From a technical panorama, Ilya Spivak mentions near-term support to rest at 1.6743-56 area marked by the August 12 low and resistance at 1.6859 (23.6% Fib ret.). He currently sits on the fence as he anticipates a correction and remains opportunistic to enter short at a more attractive entry level. Meanwhile according to DailyFX Speculative Sentiment Index, the ratio of long to short positions in the GBP/USD stands at 1.85 as 65 percent of FXCM Retail Forex traders are long the cable.
GBP/USD 5 Minute Chart
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Edward Hyon, DailyFX Research Team
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