GBP/USD Tanks after Jobs Data Showed Wage Contraction

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GBP/USD Tanks after Jobs Data Showed Wage Contraction

Bearish Trend:
GBP/USD was consolidating a bearish trend ahead of UK jobs data today. However, we can see in the 4H chart, that the consolidation was brief, and failed to push price above a key falling trendline. The 4H RSI was also held below 60, which is a sign that the bearish momentum has been maintained.

GBP/USD 4H Chart
gbpusd 4h chart 8/13

(click to enlarge)

Now as price tested the falling trendline and the 50-period SMA in the 4H chart, we got a slew of UK jobs data. Traders reacted by selling off cable sharply bringing price from around 1.6840 to almost 1.67 in a couple of hours following the release.

Wage Contraction:
I will focus on the one that mattered. The claimant claims data was decent, and the unemployment rate fell as expected, but the real focus is on the Average Earnings Index.

Average Earnings Index q/y
Apr-June: -0.2%
Forecast: -0.1%
Jan-Mar.: 0.4%average earnings index Q2 2014

(source: forexfactory.com, click to enlarge)

In the April to June quarter, the price businesses and the government paid for labor was lower than the same period last year, by -0.2%. This was the first negative reading in this index since Q1 of 2009.

Despite employment growth, the lack of wage growth is what will likely keep the Bank of England from raising rates in 2014. The prospect that the interest rate hike will be in 2015 is weighing on the GBP, which was so strong earlier this year due to the possible 2014 rate hike. Now traders are walking back on that expectation.

GBP/USD at Support Factors: When you look at the daily chart, you can see that the downtrend since 1.7191 has been very persistent, and has brought price done to the May-June lows around 1.67. The 200-day SMA might also provide support, around 1.6650. We have yet to see a significant consolidation/correction against the decline since the 1.7191 high, but the May-June low and the 200-day SMA (1.6650-1.67) area should have a good chance of providing support to pave way for a consolidation/correction, especially with the daily RSI having dipped below 30 several times already.

GBP/USD Daily Chart 8/13
gbpusd daily chart 8/13

(click to enlarge)

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.