GBP/USD – Trading the UK Jobs Data

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GBP/USD - Trading the UK Jobs Data

GBP/USD is a pair that has been shifting from a bullish market in 2014 to a neutral and possibly bearish one. We have yet to see a significant pullback since price retreated from the 2014-high at 1.7191. This week, price dug lower, to a low of 1.6756 so far. The 4H chart shows the persistent trend since mid-July.

GBP/USD 4H Chart 8/12
gbpusd 8/12 4h chart

(click to enlarge)

Bullish Divergence: In the 4H chart, there is a bullish divergence which suggests some intra-session consolidation, but there are no signs that GBP/USD would reverse.

Downside Risk: In the daily chart, you can see that there is still downside risk toward 1) the 1.6690-1.67 support area from May-June, and 2) the 200-day Simple Moving Average (SMA) around 1.6650.

GBP/USD Daily Chart 8/12
gbpusd 8/12 daily chart

(click to enlarge)

Now, during the upcoming 8/13 session, UK’s Office for National Statistics (ONS) will release jobs data.

Claimant Count Change
Forecast for July: -29.7; June: -36.3
claimant count change July 2014

(souce: forexfactory.com, click to enlarge)

Unemployment Rate
Forecast for June: 6.4%; May: 6.5%
UK  JUne unemployment rate

(souce: forexfactory.com, click to enlarge)

Avgerage Earnings Index q/y
Forecast for April-June Quarter: -0.1%, Jan-March Quarter: 0.3%
average earnings index Q2 2014

(souce: forexfactory.com, click to enlarge)

Jobs Growth: Jobs data has been improving really since 2012. For July, we are expected to see further drop in jobless claims, or the Claimant Count. If we see the count reduce by more than 30K, it would be above average forecast, and could pave the way for GBP/USD to consolidate, especially if the unemployment rate for June falls as expected, to 6.4%, or even further below that.

Lack of Wage Growth: However, despite job-growth, there’s been a lack of wage increase, which can hold bank the Bank of England from a rate hike in 2014. Therefore, if the average earnings index print comes in below the -0.1% average forecast, it could trump better-than-expected prints for claimant count change and unemployment rate. Even a reading in-line with expectations would be negative, and reaffirm a rate hike time-line to be in 2015. Essentially, this reading will have to be above 0 to make a strong case for bullish correction in GBP/USD. However, if GBP/USD has already priced poor earnings data, in which case, data in-line with forecast can pave the way for a consolidation, thought it probably won’t be as bullish as the case with positive earnings data.

Scenarios Surrounding the UK Jobs Data Release:

Positive Data – Positive Reaction: So, if positive jobs data is followed by GBP/USD failing to push lower, we can anticipate a bullish correction first toward the 1.6850 area, where price might meet the falling trendline from mid-July. Then, we will need to gauge the strength of the falling trendline to see if GBP/USD will remain bearish, or will extend into further consolidation. The further consolidation scenario is more probable if earnings data comes out positive.

Positive Data – Negative Reaction: If strong data fails to lift GBP/USD and we see another low following the data, GBP/USD will likely still have downside risk in the short-term toward that 1.6690-1.67 May-June low. We should then start expecting resistance from this week’s high just under 1.68, up to 1.6825.

Negative Data – Positive Reaction: If poor data fails to drag GBP/USD lower, we should anticipate some short-term bullish attempt. Then we should watch the trendline for resistance, which could be around 1.6850. With negative data, we should expect sellers to be waiting to fade the rally at the trendline.

Negative Data- Negative Reaction: Perhaps the most likely scenario is that the trend continues. Disappointing data can be a catalyst to this scenario. If price fails to push above 1.68, or was above 1.68 and falls back below it, we could be looking at a test of the 1.6756 low on the week, with downside toward those May-June lows around 1.67.

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.