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

The employment situation is one of the stronger suits of the U.K. economy, but has it been able to sustain its progress? Here’s what’s in store for the upcoming jobs release.

Why is this report important?

For the forex newbies just tuning in, here’s a quick rundown of what the U.K. employment report is all about. This release 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.

How did the previous reports turn out?

Three out of the last five releases printed stronger than expected results for the claimant count change, more or less indicating positive hiring momentum. Meanwhile the unemployment rate has been sitting at the 5.1% level since December last year.

The March claimant count came in at 6.7K instead of showing the projected 11.9K drop in joblessness. Wage growth was also weaker than expected, as the average earnings index slipped from 2.1% to 1.8% instead of holding steady.

GBP/USD 15-min Forex Chart

GBP/USD 15-min Forex Chart

Surprisingly, Cable had a bullish initial reaction to the previous report, as price spiked to a low of 1.4347 then surged up to a high of 1.4407. From there, the pair returned its gains then traded sideways until the start of the U.S. session during which it dropped to the 1.4350 area.

What’s expected for the upcoming release?

For the month of April, analysts are expecting to see an increase of 4.0K in claimants, possibly enough to keep the unemployment rate unchanged at 5.1%. Wage growth is expected to be even more subdued, as the average earnings index could drop from 1.8% to 1.7%.

Weaker than expected results could keep a lid on the pound’s gains, as this would undermine the BOE’s view that the U.K. labor market remains stable. Still, downbeat data could convince more voters to favor staying the EU as opposed to a Brexit since the latter could expose the U.K. economy to further job losses. And as you’ve probably witnessed, increased odds of the U.K. avoiding a Brexit appear to be supporting the British currency these days.

Here are some more things to take note of if you’re planning on trading this report:

  • Cable tends to consolidate in a tight box during the Asian session, although short-term trends could ensue if traders are excited to price in expectations.
  • 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!