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Sterling Slumps on Weak Employment Report; Poised to Test Support

David Becker
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www.iforex.com

Cable tumbled following the weaker than expected employment numbers, as it is clear that a good degree of slack still exists in the UK labor markets. Gilts rallied on the back of the news sending the yield differential in favor of the greenback. Next up for traders is the US CPI numbers do out on Thursday. Expectations are for a 0.3% month over month increase.

U.K. labor market numbers were disappointing, overall, which has seen sterling move lower. The headline claimant count rate for April dipped by 25.1k, less than the median for a 30.0 drop in the number of those looking for unemployment, which indicates a slackening rate of decline. The claimant count rate still saw a new cycle low of 3.3%, down from 3.4%, while the official ILO March unemployment rate dipped to 6.8% from 6.9%, which had been anticipated.

Average household income in the three months to March, however, disappointed, which will be taken as an indication that a good degree of slack remains in the market. Average pay including bonus came in unchanged at +1.7% y/y while the ex-bonus figure was +1.3% compared to the median 1.5%, down from 1.4% in the month prior and remaining below CPI, which is presently at 1.6%.
Sterling sliced through the 20-day moving average which was seen as support, and is poised to test an upward sloping trend line that connects the lows in February to the lows in March and comes in near 1.6710.

Momentum on the currency pair has turned negative. The MACD (moving average convergence divergence) index has generated a sell signal. This occurs when the spread (the 12-day moving average minus the 26-day moving average) crosses below the 9-day moving average of the spread. The index moved from positive to negative territory confirming the sell signal. The RSI moved lower with price action reflecting accelerating negative momentum.

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