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News traders, huddle up!

We’ve got the U.K. jobs report lined up for this week, which means it’s time for another edition of my Forex Trading Guide.

Let’s go through our usual routine, shall we?

What is this report all about?

For the newbies just tuning in, here’s a quick intro on the U.K. jobs release.

This report basically paints a picture of the economy’s labor situation with its three main components: the claimant count change, the unemployment rate, and the average earnings index.

The claimant count shows the change in the number of Brits claiming unemployment-related benefits during the reporting period so a positive reading indicates higher joblessness while a negative reading reflects an increase in employment.

The unemployment rate measures the percentage of the total workforce that is unemployed and actively seeking employment, providing a broader idea of labor market trends. Lastly, the average earnings index is the three-month rolling average of labor costs so it acts as an indicator of wage growth.

How did the previous reports turn out?

The latest U.K. jobs figures are looking as mixed as a bag of M&Ms since the claimant count change printed better than expected results for three out of the last five months while the average earnings index hasn’t been so impressive.

Still, the previous release was mostly positive as unemployment fell by 18K while wage inflation rose from 1.9% to 2.1%.

During that particular release, however, GBP/USD seemed to shrug off the positive readings since traders were holding out for the FOMC statement later that day.

GBP/USD 15-min Forex Chart
GBP/USD 15-min Forex Chart

Other pound pairs actually had a bearish reaction to the report, as market watchers were probably disappointed to see that the unemployment rate held steady at 5.1% instead of improving to the projected 5.0% reading.

What’s expected this time?

The U.K. economy is expected to show a smaller decline in unemployment of 11.9K for March and no change in the average earnings index at 2.1%. The jobless rate is also expected to hold steady at 5.1%.

Stronger than expected data could trigger rallies for pound pairs, as this would reflect resilience in the U.K. labor market.

On the other hand, weaker than expected results could lead traders to doubt if the pace of employment and wage growth could be sustained, especially with a potential Brexit threatening to weigh on economic performance.

Be on the lookout for tight consolidation ahead of the release, although day traders might be eager to cast their bets during the London session open.

The initial reaction to the report usually has some follow-through right until the start of the U.S. session or perhaps until the end if there are no other top-tier catalysts that trigger a shift in market sentiment.

If you’re not comfortable with this kind of volatility, there’s no shame in sitting on the sidelines and simply assessing how the report might affect your longer-term bias. Good luck!