– U.K. Jobless Claims to Contract for Third Consecutive Month.
– Average Weekly Earnings ex. Bonus to Slow to Annualized 1.8%- Lowest Since January 2015.
Trading the News: U.K. Jobless Claims Change
Despite forecasts for another 3.0K decline in U.K. Jobless Claims, a further slowdown in Average Weekly Earnings may weigh on the sterling and spark a bearish reaction in GBP/USD as it provides the Bank of England (BoE) with greater scope to retain its current policy throughout 2016.
What’s Expected:
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Why Is This Event Important:
Following the unanimous vote to retain the current policy, signs of slower wage growth may encourage the BoE to endorse a wait-and-see approach at the next meeting on March 17 as Governor Mark Carney & Co. reduce their economic projections and turn increasing cautious towards the U.K. economy.
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Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Construction Output s.a. (MoM) (DEC)
2.0%
1.5%
Manufacturing Production (MoM) (DEC)
0.1%
-0.2%
Retail Sales ex. Auto Fuel (MoM) (DEC)
-0.3%
-0.9%
Easing outputs accompanied by the slowdown in household spending may drag on the U.K. labor market, and a dismal Jobless Claims print may produce near-term headwinds for the sterling as market participants push back bets for a BoE rate-hike.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Mortgage Approvals (DEC)
69.6K
70.8K
GfK Consumer Confidence (JAN)
1
4
CBI Business Optimism (JAN)
—
-4
Nevertheless, improved confidence paired with the ongoing expansion in private-sector lending may generate a stronger-than-expected job/wage report, and a positive development may foster a near-term rebound in GBP/USD as it puts increase pressure on the BoE to remove the record-low interest rate in 2016.
How To Trade This Event Risk(Video)
Bearish GBP Trade: Jobless Claims, Average Hourly Earnings Disappoint
Need red, five-minute candle following the print to consider a short GBP/USD trade.
If market reaction favors selling sterling, short GBP/USD with two separate position.
Set stop at the near-by swing high/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.
Bullish GBP Trade: U.K. Job/Wage Growth Exceed Market Forecast
Need green, five-minute candle to favor a long GBP/USD trade.
Implement same setup as the bearish British Pound trade, just in reverse.
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Potential Price Targets For The Release
GBPUSD Daily
Chart – Created Using FXCM Marketscope 2.0
GBP/USD may continue to give back the rebound from 1.4078 as it struggles to retain the range-bound price action from earlier this month, while the Relative Strength Index (RSI) breaks down from the bullish formation carried over from January.
Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot
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The DailyFX Speculative Sentiment Index (SSI) shows retail crowd remains net-long GBP/USD since November 19, with positioning climbing to an extreme in January as the ratio pushed above +3.00.
Retail FX positioning appears to be moving back towards recent extremes as to pushes to +2.41, with 71% of traders now long.
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Impact that the U.K. Jobless Claims Change 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)
DEC
2015
01/20/2016 09:30 GMT
2.8K
-4.3K
+48
+58
December 2015 U.K. Jobless Claims Change
U.K. Jobless Claims unexpectedly declined another 4.3K in December after contracting a revised 2.2K the month prior. The International Labor Organization’s (ILO) gauge for unemployment also surprised as the figure narrowed to an annualized 5.1% during the three-months through November to mark the lowest reading since January 2006. In contrast, wage pressures continued to abate as Average Weekly Earnings slipped to 2.0% from 2.4% in November. Despite the ongoing improvement in the labor market, the Bank of England (BoE) may largely endorse a wait-and-see approach throughout 2016 as the central bank struggles to achieve the 2% target for inflation. The sterling fluctuated in the region between 1.4150 and 1.4200 after the release, and GBP/USD closed the North American session at 1.4187.
Read More:
GBP/USD Breaks Down on Weak U.K. Core CPI; Retail FX Still Net-Long
EUR/USD – Breakout Hangs in the Balance
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— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx