Forex Trading Guide: U.K. Employment Report (Feb)

If you’re not comfortable trading around central bank events but would still like to trade the news, the U.K. jobs release might be your golden ticket to quick forex profits this week. Here’s a simple trading guide for this report.

What is this report all about?

The U.K. employment report has two main components: the claimant count change and the unemployment rate. The former shows the number of folks who claimed unemployment-related benefits during the reporting month, so a lower figure is generally good for the economy. The latter measures the percentage of the labor force that is unemployed and actively looking for work, with a declining trend indicative of an improving labor situation.

Since the policymakers over at the Bank of England are monitoring wage growth closely, the average earnings index has also been under the spotlight for the past few months. This is the three-month rolling average of the change in salaries, making it a leading indicator of consumer inflation and spending.

What happened last time?

The January report printed mixed results, as the claimant count showed a 14.8K drop in joblessness versus the projected 2.9K decline. However, the unemployment rate didn’t budge from 5.1% even as analysts expected a decline to 5.0% while the average earnings index slipped from 2.1% to 1.9% to indicate slowing wage growth.

Pound pairs seemed unsure how to react to the numbers, although the initial move was a bullish one. GBP/USD rallied to a high of 1.4340 a few minutes after the report was released but soon erased its gains… and more.

GBP/USD 15-min Forex Chart

GBP/USD 15-min Forex Chart

GBP/JPY’s reaction was similar, as it climbed to a high of 163.76 moments after the numbers were printed before retreating towards the end of the European session.

GBP/JPY 15-min Forex Chart

GBP/JPY 15-min Forex Chart

What’s expected for the upcoming release?

For the month of March, the U.K. claimant count is expected to have dropped by 8.8K, which should be enough to keep the unemployment rate steady at 5.1%. The average earnings index is projected to have ticked up from 1.9% to 2.0% for the three-month period ending in February, indicating a slight improvement in wages.

Stronger than expected results could allow pound bulls to charge, especially if the wage index shows a very healthy rebound. On the other hand, weak data could spur losses for the British currency as this could lead forex traders to foresee a downbeat BOE statement later this week. Here are some more things to take note of:

  • Cable tends to consolidate in a tight box during the Asian session.
  • Price can break out around the start of the London session, hours before the actual report is released, as short-term forex traders place their bets.
  • Price usually moves back to its earlier consolidation levels ahead of the report.
  • The initial reaction gets reversed after a few 15-minute bars or towards the end of the London session, possibly due to profit-taking.

Of course if additional volatility ain’t your cup o’ tea, there’s no shame in sitting on the sidelines during the actual release and watching forex price action unfold. Just make sure you stay updated on how the numbers turn out so you can make the necessary adjustments with your biases. Good luck!