How unemployment data could affect GBP/USD

It is a big day for sterling on Wednesday, as the latest set of UK unemployment data will hit the newswires.

Sterling notes
Source: Bloomberg

It is expected that the figures will show continued improvement for the UK, contrasting sharply with the situation in the eurozone. Across the Channel, the European Central Bank is looking at measures to revive the flagging economy of the currency union. Meanwhile, the Bank of England, while not about to raise rates, is looking at ways of cooling the apparent bubble in the housing market. It is certainly not about to increase the size of the Asset Purchase Scheme, the quantitative easing programme enacted during the financial crisis.

Unemployment data to show Q2 progress?

The unemployment rate in the UK is expected to drop to 6.7% in April, from 6.8%, as part of a raft of data that is expected to show that the British economy is moving ahead in the second quarter of 2014. Looking back at the previous month’s figures, we saw unemployment at a five-year low, while the actual number of people in work hit its highest level since such records began to be kept in 1971.

It is in this context that we turn to GBP/USD. What we can see is that the currency pair has enjoyed yet another bounce off the 100-day moving average as dip buyers move in, as has been the case for a number of months now. With the 50-, 100- and 200-DMAs all pointing higher, the uptrend remains intact.

Make-or-break for GBP/USD

On an hourly chart, however, we can see a short-term trend from the top witnessed at the beginning of May, with the blue line marking the downward move over the past five weeks. Thus we are reaching a make-or-break moment for GBP/USD, as one trend runs straight into another – contrary – one.

I am always inclined to look at the longer-term trend as the more important one and the one that has more strength; thus I would still argue that the picture suggests we will see a retest of $1.6900 that could, if successful, lead us back to a fresh attempt on $1.7000. Round numbers prevail throughout this picture, since late May and early June both saw attempts to break below $1.6700. The fact that this level has held suggests the upside bias remains intact.

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