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.
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.
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.
- Need green, five-minute candle to favor a long GBP/USD trade.
- Implement same setup as the bearish British Pound trade, just in reverse.
- 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.
- 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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