Despite mixed employment reports from the UK yesterday, the British pound managed to hold on to some of its gains from Monday against the US dollar. GBPUSD traded above the 1.2800 handle throughout the day, dropping to a low of 1.2814 before closing at 1.2842. It finished 8.3 pips below its open price.
Data on employment revealed that there were 33,000 unemployment claims for October which was worse than the expected 24,200. The figure for September, however, was revised upwards to 13,500 after being initially reported at 21,100. The unemployment rate printed at 3.8% which missed forecasts by 0.1%. Lastly, the report showed that average hourly earnings only grew by 3.6%, missing forecasts for a 3.8% uptick.
Inflation Data on Deck
Today, inflation data are scheduled to come out at 9:30 am GMT. The headline CPI figure is expected to show a 1.6% uptick in prices compared to a year ago. Meanwhile, the core CPI which excludes the price of big ticket items is eyed at 1.7%.
Inflation is one of the key metrics that the Bank of England (BOE) considers in making changes to its monetary policy. Therefore, worse-than-expected figures could be bearish for the pound while better-than-expected ones would be bullish. Remember that there was some dissension among BOE policymakers in their last statement with two members voting for a cut. A disappointing figure could be the catalyst that the pond bears need to push GBPUSD below 1.2800.
Politics to Continue to Dominate Direction
It’s also worth noting that the market’s reaction to economic data like GDP and employment have so far been muted. In fact, the biggest move in GBP pairs happened on Monday when Brexit Party leader Nigel Farage made an announcement of no-contention to the Tory Party seats. If you’re looking to trade the currency pair, you may want to keep an eye out for our updates on the UK’s political scene.
On the hourly chart, GBPUSD is trading between support and resistance of the 100 SMA and 200 SMA. A closer look would reveal what could be an inverse head and shoulders pattern too.
Should positive inflation data from the UK be compelling enough for the markets today, we could see GBPUSD make a run for the neckline resistance at 1.2878. Conversely, worse-than-expected data or worrying news about the upcoming election could invalidate this chart pattern and send the currency pair to support at 1.2818 or maybe even to 1.2770.