GBP Breakout on Tap as UK Jobless Claims Set to Fall Further

DailyFX

- U.K. Jobless Claims to Decline for Eleven-Consecutive Month

- ILO Unemployment Rate to Hold at 7.7% for Second Month

Trading the News: U.K. Jobless Claims Change

Unemployment claims are expected to contract another 25.0K in September, and a positive development may trigger a near-term rally in the GBPUSD as it raises the outlook for growth and inflation.

What’s Expected:

Time of release: 10/16/2013 8:30 GMT, 4:30 EDT

Primary Pair Impact: GBPUSD

Expected: -25.0K

Previous: -32.6K

DailyFX Forecast: -15.0K to -30.0K

Why Is This Event Important:

Indeed, the stronger recovery in the U.K. raises the risk of seeing the Bank of England (BoE) implement its exit strategy ahead of schedule, and the sterling may continue to outperform against its major counterparts amid the material shift in the policy outlook.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Construction Output s.a. (YoY) (AUG)

3.9%

4.0%

NIESR GDP Estimate (SEP)

--

0.8%

Mortgage Approvals (AUG)

61.5K

62.2K

The ongoing expansion in private sector credit along with the budding recovery the housing market may prompt a further decline in unemployment, and a better-than-expected print may ultimately prompt a more meaningful move at the 1.6300 handle as the BoE retains a 7% unemployment threshold for its forward-guidance.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Trade Balance (AUG)

-2.050B

-3.320B

Manufacturing Production (MoM) (AUG)

0.4%

-1.2%

Purchasing Manager Index- Manufacturing (SEP)

57.5

56.7

However, the recent lull in business outputs paired with the weakness in global trade may drag on the labor market, and the sterling may struggle to retain the range-bound price action from earlier this month should the employment report disappoint.

How To Trade This Event Risk(Video)

Bullish GBP Trade: Jobless Claims Contracts 25.0K or More

  • Need green, five-minute candle following the print to consider a long GBPUSD trade
  • If reaction favors a buy trade, long GBPUSD 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: Unemployment Report Disappoints

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

Potential Price Targets For The Rate Decision

GBPUSD Daily

View gallery

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Forex_GBP_Breakout_on_Tap_as_UK_Jobless_Claims_Set_to_Fall_Further_body_Picture_2.png, GBP Breakout on Tap as UK Jobless Claims Set to Fall Further

Chart - Created Using FXCM Marketscope 2.0

  • Threatening Trending Resistance Amid Range-Bound Prices
  • Relative Strength Index Breaks Out of Bearish Momentum
  • Interim Resistance: 1.6300 Pivot (2012 highs)
  • Interim Support: 1.5900-10 (78.6% Fibonacci expansion)

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

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JUL 2013

09/11/2013 8:30 GMT

-21.0K

-32.6K

+11

+56

July 2013 U.K. Jobless Claims Change

View gallery

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Forex_GBP_Breakout_on_Tap_as_UK_Jobless_Claims_Set_to_Fall_Further_body_ScreenShot237.png, GBP Breakout on Tap as UK Jobless Claims Set to Fall Further

U.K. Jobless Claims slipped another 32.6K in July following a 36.3K contraction the month prior, while the ILO Unemployment Rate unexpectedly slipped to 7..7% from 7.8% to mark the lowest reading since November 2012. The better-than-expected print propped up the British Pound, with the GBPUS climbing above the 1.5800 handle, and the sterling continued to appreciate during the North American trade as the pair closed at 1.5816.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com

Follow me on Twitter at @DavidJSong

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