UK’s Unemployment Rises, US Inflation Numbers On The Radar

The UK releases its jobs numbers for the month of August. Germany’s economic sentiment is on the radar. The US is will take centre stage later on in the day, as it produces inflation numbers for September, which will be carefully monitored by the Fed.

UK’s Employment

This morning the United Kingdom released its jobs numbers for the month of August. The initial forecast for the unemployment rate was for a rise from +4.1% to +4.3%, but the actual number came out at +4.5, which is a big disappointment for UK. We can see from the chart below that this number started increasing rapidly, suggesting that the country’s labour market is feeling the effects of the pandemic. Average earnings including bonuses showed up slightly better than its forecast. The figure came out at 0.0%, when the expectation was for a -0.6%. Certainly, the UK jobs number is one of the economic indicators that the BoE is currently keeping an eye on, as the country battles the coronavirus pandemic. As we already know, the BoE is exploring the option of introducing a negative interest rate, if the economic situation deteriorates further. Because there is still a lot of uncertainty with regards to Brexit and the final deal, Britain already started making trade deals with some non-EU members. Negative interest rates might help the country’s exports become slightly more attractive on the global arena, as the British pound would become weaker against its major counterparts. Certainly, borrowing costs inside the country would be lower, which may help stimulate the economy. However, that might be a short-term benefit, if the overall economy turns south, causing issues in the financial sector. Banks may slow down their lending and the consumer could hold on to physical cash, instead of depositing it into savings accounts. So that’s why the Bank of England is at no rush at all, for now, to introduce negative rates, until it believes it would become a necessary measure to take.

GBP/USD — Technical Outlook

At the end of last week, GBP/USD managed to push above the psychological 1.3000 barrier and since then it continues to trade there. Also, the pair continues to balance above a short-term tentative upside support line taken from the low of September 25 th. We will take a positive approach for now and aim for slightly higher areas.

If the rate is able to rise above yesterday’s high, at 1.3082, that would confirm a forthcoming higher high and could open the way for a further uprise. That’s when we will aim for the 1.3140 obstacle, a break of which may send GBP/USD to the next possible resistance area, at 1.3242. That area marks the low of September 3 rdand an intraday swing high of September 7 th.

Alternatively, if the pair suddenly drops back below the aforementioned 1.3000 zone and then breaks below the aforementioned upside line, that could spook the bulls from the field temporarily, especially if the pair also falls below the low of September 9 th, at 1.2923. If such a move occurs, more bears might join in and drive GBP/USD to the 1.2845 obstacle, a break of which may set the stage for a push to the 1.2805 level, marked by the low of September 30 th.

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In addition to the UK’s employment readings, we also received the German inflation numbers on a MoM and YoY basis for the month of September. The German inflation numbers came out exactly as expected, at -0.20% on both, the MoM and YoY basis.

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A few hours later today, we will be receiving the German ZEW economic sentiment. After the market turmoil we experienced in March, the ZEW reading managed to recover somewhat. In regards to the September figure, German institutional investors believe that the number could remain high, but this time it may come on the slightly lower side than the previous 77.4, at 73.0. If the actual figure shows up below the forecast, this could have a slightly negative effect on the euro against some of its major counterparts.

US Inflation Figures

Another set of economic data, which we will monitor, will be the US inflation readings for September as well. The numbers released will be both, core and headline on a MoM and YoY basis. The MoM core and headline readings have the same forecast, where both are believed to have declined slightly from +0.4% to +0.2%. On the other hand, the YoY core and headline figures are expected to rise a bit. The core one is forecasted to go from +1.7% to +1.8% and the headline is believed to move from +1.3% to +1.4%. The core inflation numbers exclude food and energy prices. Let us remind the readers, that at the latest FOMC meeting, the committee changed its language in regards to inflation, where they have stated that: “will aim to achieve inflation moderately above 2% for some time so that inflation averages 2% over time”. If the readings come out better than expected, that would work well towards the Fed’s inflation target of average 2% over time. This might also push the Fed towards raising rates sooner, rather than later.

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USD/CHF — Technical Outlook

As we can see from the technical picture of USD/CHF on our 4-hour chart, the pair continues to trade near the lower bound of the short-term falling channel. As long as the rate remains withing the boundaries of that channel, the near-term outlook could stay negative.

Yesterday, the pair found some good support near the 0.9087 hurdle, which also marks the low of September 21 st. However, if USD/CHF falls below that hurdle, it may go and test the 0.9075 obstacle, marked by the low of September 18 th, or the lower side of the aforementioned range. That whole area might provide decent support, from where the pair may rebound somewhat. That said, if the rate stays somewhere below the 0.9115 barrier, marked by an intraday swing high of September 12 th, that might result in another slide. If this time USD/CHF is able to overcome the 0.9075 area, this might open the way to the 0.9055 and 0.9051 levels, marked by the lows of September 16 thand 15 threspectively.

In order to aim for higher areas, at least in the near term, we would first need to wait for a violation of the upper side of the aforementioned channel. In addition to that, a push above the 0.9162 barrier, marked by an intraday swing high of October 9 th, may increase the pair’s chances of moving further north. USD/CHF could then travel to the 0.9184 obstacle, or even to the 0.9197 hurdle, marked by the high of October 8 th. If the buying doesn’t stop there, the next potential target might be at 0.9219, which is the current highest point of October.

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As For The Rest Of Today’s Events

Today oil traders will keep an eye on the release of OPEC’s monthly oil market report. The report covers the main issues, which are currently affecting the global oil market and also provides an outlook for the upcoming year. The report can be useful for those, who are looking for longer term trades in oil, as it looks at key developments, which are impacting and could impact the trends of demand and supply.

Disclaimer:

The content we produce does not constitute investment advice or investment recommendation (should not be considered as such) and does not in any way constitute an invitation to acquire any financial instrument or product. The Group of Companies of JFD, its affiliates, agents, directors, officers or employees are not liable for any damages that may be caused by individual comments or statements by JFD analysts and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his investment decisions. Accordingly, you should seek, if you consider appropriate, relevant independent professional advice on the investment considered. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances or needs. The content has not been prepared in accordance with the legal requirements for financial analyses and must therefore be viewed by the reader as marketing information. JFD prohibits the duplication or publication without explicit approval.

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Originally published at https://www.jfdbank.com on October 13, 2020.

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