Charts for the day : GBP employment data for Q2.
Today's post is not a specific chart, as there are a number of options we could go for. It is more like 'charts for the day'.
Q1 for the Bank of England was soft. The last rate meeting on the 10th of May pushed back expectations of a rate hike until August. This is now the market narrative for the BOE and what the market is asking in deciding future GBP direction, 'Will Q2 data support a BOE rate hike for August?'. Today is the first day that we get to 'road test' this narrative when the employment data is released for the UK at 0830GMT. A Bloomberg article I read earlier expected the latest data to show that the UK is creating plenty of jobs with pay growth continuing to rise. Other expectations they had was for
- pay should show an increase of 2.9% in the three months to March, up from 2.8% in the prior period.
- A rise in employment of 130,000, compared with consensus of 129,000 and 55,000 previously.
- A headline unemployment rate of 4.2% in the three months to March, matching the median estimate of economists in a Bloomberg News survey and unchanged prior period.
Now the poor weather for Q1 should not have had any impact on hiring. Ok, so we know this is a good release to watch. If , and it is only if, we do get a beat of the figures, we can expect to see a reaction in the GBP to the upside. GBP is the first part of the equation.
Now, which currency to trade it against? If we do get a beat trade the GBP against any recent weak currency. It could be the NZD which has weakened on Governor Orr's comments last week. Maybe CAD which was weakened by a jobs report last Friday? perhaps the JPY which is set to maintain their policy for some time. Or even EUR which ended the day on a dovish note yesterday after ECB's Coeure re-iterated the 'extended period of time' mantra for present rates. AUD has some bearish sentiment in it too. You could also trade it against the USD, but remember that the US dollar is finding some demand and US 10 year treasury yields are up above 3% again.
The key aspect is to pair a strong currency with a weak currency. So, to summarise, if we get an employment beat for GBP trade it against one of the weaker currencies outlined above. Look out for risks , e.g top tier data releases in the sessions you are trading. It could be dairy auctions for NZD or an ECB speaker or EUR data. If trading against the USD keep an eye on treasury yields and core retails sales in the next session.
Have a good day and trade safe.