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Abstract: Employment data more relevant to the GBP's trend showed a smaller-than-expected slowdown in wage growth in September, from 8.1% to 7.9% (vs. the expected 7.3%), and jobless claims fell to 17,800.

Fundamentals

The number of employed people in the UK increased by 33,000 in October, up 0.1% MoM. The number of paid employees was 398,000, a YoY increase of 1.3%. The median monthly salary increased by 5.9% YoY, down from 6.0% last month. The number of applicants for unemployment benefits increased by 17,800, higher than the expected 15,000.

In the three months to September, the unemployment rate remained unchanged at 4.2%, which was in line with expectations. The average salary, including bonuses, increased by 7.9% YoY, higher than the expected 7.3% and slower than the previous 8.1%. The average salary excluding bonuses increased by 7.7% YoY, which is in line with expectations, but it slowed down from 7.8% last month.

The Office for National Statistics reports that the job market is cooling which seems to be good news for the Bank of England (BOE). The combination of further weakness in the labor market and falling inflation should help to slow wage growth further in the coming months.

Due to the tentative adjustment of some hawkish bets, the GBPUSD rose in the early European session. We believe that the GBPUSD is preparing to retest near the threshold of 1.2400. However, the UK still faces some economic challenges, which may put downward pressure on the GBP.

For the GBPUSD traders, the key event today is the October consumer price index (CPI) report of the U.S. Higher-than-expected data will almost certainly deepen the bearish trend of the GBPUSD. However, if the CPI data is lower than expected, the GBPUSD may rise above 1.2400.

Technical Analysis

On Tuesday, the GBPUSD broke above the threshold of 1.2300 in the early European session, boosted by better-than-expected U.K. labor data, which exacerbated the hawkish stance of the BOE's interest rate outlook.

The GBPUSD rose for the second consecutive day after falling into a short trap on Friday. Currently, the bulls are retracing after testing the 1.2300 level. A clear break above this level would further strengthen the recent upward structure.

If buying interest increases, the peak of 1.2336 in October may become the first resistance to price breakthrough. After breaking through this range, bulls will test the psychological barrier of 1.2400. Any further increase should be limited below the previous high of 1.2428, and then continue to return to the bottom of the range. (As shown in the chart) Moreover, as long as the bottom interval has not been broken again, the bulls will hopefully retest the 1.2500-1.2600 range.

Alternatively, if the price continues to move lower against 1.2300, the initial downtrend could stop around the near-term support at 1.2186. If it fails to stop here, the GBPUSD could challenge the 1.2090 support area ahead of the eight-month low at 1.2036. Even lower, the March bottom at 1.1800 could provide downside protection.

Overall, the GBPUSD appears to be regaining some upward momentum as momentum indicators have turned positive over the past few sessions. It is recommended to buy low and sell high provided that the key bottoms are not broken.

Trading Recommendations

Trading direction: Short

Entry price: 1.2500

Target price: 1.2110

Stop loss: 1.2600

Deadline: 2023-11-28 23:55:00

Support: 1.2249, 1.2202, 1.2186, 1.2095

Resistance: 1.2308, 1.2337, 1.2387, 1.2428