GBP/USD to Extend Losses on Dismal Job/Wage Report
David SongShuyang Ren
DailyFX.com -
- 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.
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.
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.
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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GBP/USD SSI
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.
Why and how do we use the SSI in trading? View our video and download the free indicator here
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
GBP/USD Chart
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.
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