Ahead of the European cash open, we welcome potentially heavyweight UK data at 7:00 am GMT.

As I am sure you’re already aware, I must point out that traders will be viewing the unemployment metric with some trepidation due to problems with data collection. Market consensus, however, forecast a slight uptick in the unemployment rate to 4.0% in the three months to December 2023 from 3.9% in November. I do not see 4.0% causing too many ripples in the financial markets, though a marked deviation—south of 3.8% or north of 4.4%, for example—would likely elevate volatility across GBP currency pairs.

Wages data will be the highlight event for most of the traders and investors, as well as, of course, those at the Bank of England (BoE). Headline earnings growth data (including bonuses) is expected to reveal a sizeable slowdown in wage growth to 5.6% in the three months to December 2023, down from November’s reading of 6.5%; the estimate range currently spans between 6.0% and 5.4%. The ex-bonus print is also forecast to cool to 6.0% over the same period, from 6.6% in November, yet has a much narrower estimate range between 6.1% and 6.0%.

As you can see, the markets already expect a sizeable downside print for the headline wages release. As a result, in order to surprise the markets, I would expect we would need to see the release touch or surpass the estimate low of 5.4%, which is likely to weigh on sterling and bring forward rate-cut expectations.

We have seen the markets pricing in a higher-for-longer theme for the BoE’s Bank Rate, with around 83bps of easing priced in for the year-end as of writing. The first 25bp is not expected now until August’s policy-setting meeting.

GBP/USD Reacted from Resistance

The FP Markets Research Team released a week-ahead post for the GBP/USD which demonstrated a bearish vibe for the major currency pair. You will have also likely noted that one of the scenarios actually played out heading into the London open today: a short-term whipsaw north of H1 resistance from $1.2648-$1.2642 into a neighbouring H1 resistance from $1.2653. The move did indeed attract strong selling and provided ample opportunity to not only reduce risk to breakeven but also lock in gains.

EUR/GBP Also Trading from Support

As we can see from the daily chart of EUR/GBP, the cross is seen just off support on the daily timeframe at £0.8514. Couple this together with price action chalking up an AB=CD harmonic support at £0.8498, derived through the 100% projection ratio, and traders have a meaningful support area to work with.

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