GBP/USD and GBP/JPY could break higher after strong UK jobs data

The pound extended its gains this morning following the release of some cheerful jobs data out of the UK. The GBP/USD climbed to an initial high of almost 1.6820, which was the previous 2014 high, while the GBP/JPY climbed to its highest in nearly two weeks.

The unemployment rate unexpectedly fell to 6.9% in the three months to February from 7.2% previously as the number of people out of work dropped by 77,000 to a five-year low of 2.24 million. The number of job created was more than double the estimates – up 239,000 vs. 90,000 expected. Separately, applications for unemployment benefits fell by 30,400 in March after declining by an upwardly revised 37,000 the month prior. Overall, it was very strong labour market report and although average earnings including bonuses missed the estimates, at 1.7% it was still above the CPI which fell to 1.6% in March. In other words, real wages grew for the first time since spring 2010.

As mentioned, the GBP/USD nearly revisited the previous 2014 high of 1.6820/2 for the second time in as many weeks, before edging lower on profit-taking. Although the there is a possibility that the Cable could potentially form a near-term top here, the chances look slim from both the fundamental and technical points of view. Indeed, the progressively shallower pullbacks in recent weeks suggest price may be gearing up for a potential break higher. Following the recent range-bound price action that we have seen across the FX market, this could provide an excellent opportunity for the frustrated breakout traders.

Specifically, a break above 1.6820/5 could see the Cable potentially climb to an eventual target of 1.7040 which was the August 2009 peak. This level also corresponds with the 161.8% Fibonacci extension level of the corrective move from the February peak (1.6822) to March low (1.6460). Meanwhile the 127.2% extension of this price swing meets the 161.8% of another, short-term, one at around 1.6920. This level is therefore also likely to provide some resistance. The near-term support level meanwhile is seen at 1.6780 initially followed by 1.67454/50 and then 1.6660/5. These levels were all either support or resistance in the past. I remain bullish on the Cable for as long as it can hold above the Tuesday’s low of 1.6660 on a daily closing basis.

Meanwhile the GBP/JPY rallied to its highest level in nearly two weeks before stalling slightly on profit-taking. But the cross looks like it has further room to the upside after successfully holding its own above both the 50-day moving average and also a long-term bullish trend line. And the progressively shallower pullbacks in recent times suggest price may be gearing up for a potential break higher although at the moment it is still stuck inside a pennant consolidative pattern.