GBP/USD to Face Larger Rebound on Upbeat U.K. Job/Wage Report

- U.K. Jobless Claims to Contract for Fourth Consecutive Month.

- Average Weekly Earnings ex. Bonus to Climb to Annualized 2.1%- Highest Since September.

Trading the News: U.K. Jobless Claims Change

Another 9.1K decline in U.K. Jobless Claims paired with signs of stronger wage growth may heighten the appeal of the British Pound and spur a near-term advance in GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.

What’s Expected:

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Why Is This Event Important:

Even though the EU referendum clouds the economic outlook for the U.K., a further improvement in labor-market dynamics may spur a split within the Bank of England (BoE) as central bank officials remain upbeat on the economy and see a risk of overshooting the 2% inflation-target over the policy horizon.

Expectations: Bullish Argument/Scenario

Improved demand from home and abroad may encourage U.K. firms to ramp up their labor force, and a marked pickup in job/wage growth may spark a near-term advance in Cable as it boosts interest-rate expectations.

Risk: Bearish Argument/Scenario

Nevertheless, waning confidence along with the slowdown in service-based activity may drag on employment, and a dismal labor report may produce near-term headwinds for the sterling as it market participants push out bets for a BoE rate-hike.

How To Trade This Event Risk (Video)

Bullish GBP Trade: U.K. Job/Wage Growth Exceed Market Forecast

• Need green, five-minute candle following the print to consider a long GBP/USD trade.
• If market reaction favors buying sterling, long GBP/USD with two separate position.
• Set stop at the near-by swing low/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.

Bearish GBP Trade: Jobless Claims, Average Hourly Earnings Disappoint

• Need red, five-minute candle to favor a short GBP/USD trade.
• Implement same setup as the bullish British Pound trade, just in reverse.

Potential Price Targets For The Release

GBPUSD Daily

Chart - Created Using FXCM Marketscope 2.0

• Long-term outlook for GBP/USD remains tilted to the downside as the pair largely retains the downward trend from August, but there appears to be a divergence in the Relative Strength Index (RSI) as the oscillator carves a higher-low in February and threatens the bearish formation carried over from the previous year.
• Interim Resistance: 1.4910 (61.8% retracement) to 1.4930 (38.2% expansion)
• Interim Support: 1.3870 (78.6% expansion) and 1.4000 pivot

Impact that the U.K. Jobless Claims Change has had on GBP during the last release

January 2016 U.K. Jobless Claims Change

The U.K. labor report beat market expectations in January, with Jobless Claims contracting another 14.8K, while the International Labor Organization’s (ILO) gauge for unemployment held steady at an annualized 5.1% during the three-months through December. At the same time, the headline reading for U.K.wage growth slowed to annualized 1.9% from a revised 2.1% in November to mark the lowest reading since February 2015, while Average Weekly Earnings excluding bonuses unexpectedly climbed 2.0% during the same period amid forecasts for a 1.8% print. Despite the ongoing improvement in the labor market, the Bank of England may continue to delay its normalization cycle as the EU referendum clouds the economic outlook for the U.K. The sterling snapped back following the better-than-expected prints, with GBP/USD climbing above the 1.4300 handle, but the market reaction was short-lived as the pair closed the day at 1.4286.