Backdrop: The GBP/USD consolidated after reaching 1.5440 to start the week. We saw an expanded range, followed by a lull in volatility. This was an indecisive market ahead of UK jobs data, but with price holding above 1.53 and the 1H RSI holding above 40 for the most part, cable was maintaining a bullish bias.
GBP/USD 1H Chart 2/18
(click to enlarge)
UK Claimant Count Change (Jan.) -38.6K
Forecast: -25.2K
Previous: -35.8K
Average Earnings Index 3m/y (Dec): 2.1%
Forecast: 1.7%
Previous: 1.8%
(click to enlarge; source: forexfactory.com)
UK Unemployment Rate (Jan.): 5.7%
Forecast: 5.8%
Previous: 5.8%
(click to enlarge; source: forexfactory.com)
Wage Growth is Key:
From the labor market statistics for January and Q4, we can see that the job market has improved at the turn of the year. The key data point here is actually the average earnings reading, which was strong in Q4. When the BoE was considering a rate hike, it was the lack of wage growth that kept it from pulling the trigger, among other things. Wage growth was continually mentioned as a key barrier, so if we start to see strong wage growth, the next bullish economic cycle should anchor the BoE back into rate hike considerations. The 2.1% reading is not that impressive, but the trend has been picking up.
GBP/USD Reaction:
The market liked this data set for the pound. The 1H chart above shows the GBP/USD pop up above a tight consolidation, testing the 1.5440 high. It looks poised to break it during the 2/18 US session, though there is risk of an intra-session pullback toward 1.5380-1.54.
GBP/USD Daily Chart 2/18
(click to enlarge)
From the daily chart, we can see that price has indeed bottomed and broken above a falling trendline that’s kept cable bearish since the 2014 high at 1.7190. While the medium-term outlook might still be sideways or bearish, the short-term outlook is bullish, with the 1.56 level in sight. This is a support/resistance pivot area and where the 100-day SMA resides.
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