UK Jobs and CPI before rescheduled BOE

Cable has been under pressure as the interest rate gap between the pound and dollar widens, so now there is a focus on what key data might signal to the BOE before its delayed meeting next week.
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Is talk of parity in cable justified?

The BOE was scheduled to meet this Thursday, but the meeting has been postponed for one week.

That would put it one day after the Fed's meeting, for which there is a pretty strong consensus that a 75bps hike is coming. But from the BOE, it's not so certain. A slim majority project a "triple" rate hike, while around a quarter project a "double" hike, according to a Reuters poll conducted before the announcement of the date change.

On Monday is the release of July GDP, which is expected to come in negative once again. But this time at just -0.1% compared to -0.6% in June. One of the reasons the BOE has been reluctant to raise rates as aggressively has been worries about a recession. But the bank might be more willing to tolerate a "technical recession" so GDP figures close to 0 might be seen as an argument for tighter policy, and could support the pound.

The big(ger) data

What could have a bigger impact on cable, however, is the employment data to be released on Wednesday. Not because the BOE is tracking job numbers, but labor tightness is seen as an indicator of potential price pressure. With the claimant account in the negative, it can be surmised that the BOE is likely to ignore employment numbers and focus on getting inflation under control. That could be another argument for cable recovering a bit of strength, unless data disappoint.

UK August claimant count is expected at -4K, vs -10.5K in July. But the unemployment rate is expected to remain at 3.8%. Meanwhile, average earnings are expected at 4.6%, down from 5.1% prior.

Divergence and hammer

Cable bulls are engaging in a rally toward the 38.2% Fibonacci retracement of the 1.1400- 1.2295 leg near 1.1760. Profit-taking can be expected to retrace some gains but declines are mostly opportunities to join the trend as the stochastic divergence printed during a bullish

hammer formation. However, increasing shorts could send the pair back to the key support of 1.1400.

Crossing above the first handle would expose the 50% Fibonacci at 1.1850 and above there the golden pocket at 1.1950. Coincidently, both resistances at 38.2% and 61.8% are clusters; the former with the swing low of July 14, and the latter with the swing low of June 14 and the 50-day average, requiring increasing upward momentum to give in.

Downward short-term price action sees the gaps at 1.1650 and 1.1600 as minor supports above 1.1500.

Key takeaways

The Fed is expected to raise rates by 0.75% during its meeting next week while BOE is still unsure about a “triple” hike more than it is about a “double”.

July’s GDP could give the BOE some breathing room to raise rates if it prints a figure near zero,
supporting the pound.

The release of the jobs report on Wednesday will likely have a bigger impact on the Bank's decision-making, as labor tightness hints at price pressure. If employment comes out negative again, it could cause a rebound in cable.