EUR/GBP bears cautiously optimistic as UK jobs data surprises

Yesterday’s UK inflation figures suggested price pressures weakened sharply in September with the CPI dropping to 1.2% from 1.5% previously. This helped to push the first BoE rate hike expectations further out, and sterling was pounded as a result. Today however the pound is making a comeback following the publication of UK jobs data, which were mostly better than expected. Total unemployment in the UK fell by a good 154 thousand in the three months to the end of August. At 1.97 million, unemployment is now below the two million mark for the first since 2008 when we were at the peak of the financial crisis. Correspondingly, the unemployment rate has dropped to 6% from 6.2% previously, more than 6.1% expected. However, earnings are still below inflation even though the latter has weakened considerably. Nevertheless, they have edged higher to 0.7% from 0.6% previously, but in line with the expectations. Meanwhile, jobless claims in September fell by 18,600, much less than a drop of 34,200 expected. This overshadowed an otherwise healthy set of employment data.

But so far the gains for the pound have been minimal, especially against the dollar, as the market is still reeling from those inflation figures from yesterday and ahead of US retail sales data in the afternoon. Nevertheless, the pound has strengthened more notably against the euro, which continues to remain under severe pressure amid the recent soft patch in Eurozone data.

In addition to the abovementioned fundamentals, the EUR/GBP has found added pressure from technical selling: Following a sharp-two day rally, the cross has run into resistance around the 0.7950-65 area. As well as the breakout point of the last sell-off, this area marks the convergence of the 100-day moving average with the 61.8% Fibonacci retracement level of the downward move from the September high (0.8065). It is likely that the EUR/GBP may resume its long-term downward move from here. That said, price has behaved somewhat bullishly of late, first bouncing off the long-term horizontal support at 0.7770 (on the last trading day of September) and then breaking through the 0.7890/7900 resistance area this Monday. Thus, it may be wise to proceed with extra caution while it remains above the broken resistance levels such as 0.7890/7900, which may now turn into support. However should it go on to break back below there then a retest of the key 0.7770 support could be on the cards. Meanwhile the next level of resistance is likely to be 0.8000, which is also the 78.6% Fibonacci retracement level. Above this area, the bulls may target 0.8035, 0.8065 or even 0.8145.