Cite expectation for UK labor report will disappoint

Adam Cole, strategist for RBC, is out with a short recommendation of GBPUSD at 1.2895. He targets 1.2635 with a stop at 1.3025.

His reasoning for the trade:

  • He sees earning growth to fall well below 2%
  • The wage growth is more than 1% below CPI inflation.
  • He argues that makes the rise in CPI more transitory, but at the same time squeezing incomes that will slow spending
  • He expects that the market is 50-50 on hikes in the US and UK by the end of 2017. He expects the UK chances to go to 0% while the US chances to rise to 100%.
  • Technically, the failure of GBPUSD to hold 1.3000 is bearish.

The UK employment statistics will be released on Wednesday. The expectations are for Employment change to show a 120K increase vs 109k previously, the unemployment rate to come in at 4.6%. The average weekly earnings 3M/YoY to rise by 1.8% vs 2.1% last month. The CPI YoY has risen to 2.8% YoY. The trade weighted drop of the GBP as a result of Brexit (and a lesser extent the UK election), has led to import inflation.

My technical view is more bearish below the 100 and 200 hour MAs at 1.2920 and 1.2943 respectively. Stay below is more bearish. Move above and all bets are off for me. Closer intraday resistance comes in at 1.2892 currently.