Sterling received support near recent levels against the euro and dollar after new data from the Office for National Statistics showed UK wages were faster than expected in June, with job openings remaining high in a low unemployment environment. The GBP/USD pair collapsed towards the support level 1.2007 before settling around the 1.2090 level at the time of writing the analysis, before the announcement of the British inflation figures, and most importantly the content of the minutes of the last meeting of the US Federal Reserve.

Office for National Statistics said average earnings in the UK with built-in bonuses up 5.1% up from the 4.5% the market was looking for, but down from 6.2% in May. Average wages, excluding bonuses, rose 4.7% in June, ahead of the expected 4.5%, and up 4.3% in May. While earnings are still well below inflation, the BoE is likely to remain inclined to continue raising interest rates as wage adjustments remain high compared to long-term trends.

Commenting on the figures, Ruth Gregory, chief UK economist at Capital Economics said: “This is stronger than the 4.5% rate we have assumed and the consensus. With wage growth well above 3.0-3.5% rates which are in line with the 2% inflation target, this supports our view that the BoE will. It should raise interest rates more than expected to 3.00%.”

Simon Harvey, head of forex analysis at Monex Europe, says: “Another UK labor market report shows no conclusive evidence that the recession appears to be easing wage pressures. This does not bode well for the Bank of England which is actively looking for a weaker consumer background.”

The country’s unemployment rate remained at 3.8% in June, as the number of employed people aged 16 and over in the quarter increased by 160,000. The associated employee estimate for July 2022 shows a monthly increase, 73,000 more than the revised June 2022 numbers, to a record 29.7 million. The UK employment rate for people aged 16-64 fell 0.1 percentage point in the quarter to 75.5%, indicating more people are returning to the job market. Indeed, the Office for National Statistics has noted a decline in numbers classified as economically inactive.

The data has been strong and consistent with the trends of recent months, and thus does not necessarily change the rules of the game for the British Pound. However, it is strong enough to protect against heavy selling. “Even with the alternation of self-employment allowed and the recent decline in real wages, this is an impressive recovery for the UK labor market,” says Simon French, chief economist at Panmore Gordon.

Where is unemployment headed?

Looking ahead, the unemployment rate is likely to start rising and wage pressures to subside as the supply of labor in the market increases in line with rising levels of immigration and a halt in job vacancies. The number of job vacancies fell by 19.8 thousand in the August quarter to 1.27 million, the first quarterly decline since 2020. It was very encouraging to see the size of the workforce, says Samuel Tombs, chief UK economist at Pantheon Macroeconomics. Non-UK nationals rebound in the three months to June, offsetting the persistent weakness in the local labor supply. Pantheon Macroeconomics expect the unemployment rate to start rising as the labor supply increases, relieving pressure on wages and prompting the BoE to consider ending the interest rate raising cycle.

Sterling Dollar Technical Analysis:

• GBP/USD appears to be ready for another leg down, as the pair formed a double top pattern on the four-hour time frame.
• The price is already testing the neckline around the 1.2000-1.2050 region, and a break below would confirm selling.
• GBP/USD could slide as high as the chart pattern or close to 250 pips. Note, however, that technical indicators point to a continuation of the rally.

For example, the 100 SMA is above the 200 SMA to indicate that the trend has a chance to go up and that support is more likely to hold rather than a breakout. The 200 SMA appears to be holding as a dynamic support, possibly sending GBP/USD to higher levels around 1.2250. The stochastic is indicating oversold or exhausted levels among sellers, so a shift to the upside means buyers are ready to take over. The RSI has a bit more room to go lower before indicating that the sellers need a break, but the oscillator is approaching oversold territory as well.

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The most important events in the Forex market last week were in favor of the continued strength of the US dollar in the market, and the currency pair USD/JPY launched towards the resistance level 136.56, near its highest in 24 years, and settled around the level of 136.00 at the beginning of this week’s trading. The minutes of the last meeting of the US Federal Reserve and US job numbers are still in favor of the path of aggressive US interest rate hikes throughout 2022 to contain record US inflation.

Overall, any further upward revision by the market of US interest rate expectations will do nothing but amplify analysts and economists’ recent concerns about recession risks in the US and the global economy, a risk many recently described as rising.

According to economic analysis, the USD/JPY currency pair is being traded affected by important and unexpected events. Japan was hit by a major tragedy on Friday following the assassination of former Japanese Prime Minister Shinzo Abe. The geopolitical turmoil did not help the Japanese yen, which continued to slide against the dollar. Besides, the Eco Watchers survey for June beat the current forecast of 52.4 with a reading of 52.9, but missed the forecast of 51.6 with a reading of 47.6.

From the US, the US non-farm payrolls performance for June exceeded expectations at 268 thousand jobs with 372 thousand jobs recorded, while the US unemployment rate was in line with estimates at 3.6%. On the other hand, average hourly wage growth improved by 5.2% (y/y), beating the estimate of 5% while also matching the (mo) forecast of 0.3%. Earlier in the week, US initial jobless claims and continuing claims missed estimates. The ISM Services PMI exceeded expectations of 54.5 with a reading of 55.3, while the vertical sectors associated with it came in below expectations.

USD/JPY Forecast

In the near term and according to the performance on the hourly chart, it appears that the USD/JPY is trading within an ascending channel formation. This indicates a significant short-term bullish momentum in market sentiment. Therefore, the bulls will target short-term profits at around 136,474 or higher at the resistance of 136,978. On the other hand, the bears will target the possibility of a pullback at around 135,625 or lower at 135.153.

In the long term and according to the performance on the daily chart, it appears that the USD/JPY is also trading within an ascending channel formation. This indicates a significant long-term bullish momentum in market sentiment. Therefore, the bulls will look to extend gains by targeting profits at around 138,088 or above at the resistance of 140.349. On the other hand, the bears can target long-term profits at around 134,268 or lower at the 132.085 support.

We expect natural gas to rise during its upcoming trading.

Spot natural gas prices (CFDS ON NATURAL GAS) continued to rise during the recent trading at intraday levels, to achieve new daily gains until the moment of writing this report. It rallied at a rate of 1.14%, to settle at its highest price since January at $6.143 per million British thermal units. After rising during yesterday’s trading in a volatile session, for the sixth consecutive day, it increased by 0.07%.

US natural gas prices were on course to stabilize on Wednesday at their highest levels since January, but gave up all their gains to close almost unchanged.

Prices traded as high as $6,394, which would have represented the highest finish since December of 2008. They are still trading up more than 5% for the week.

On Wednesday, the United States and its allies unveiled new sanctions against Russia over its invasion of Ukraine, including a ban on all new investments in the country, and the two daughters of Russian President Vladimir Putin were also targeted. However, the European Union has stopped joining the United States and the United Kingdom in banning Russian oil imports.

However, EU officials have indicated that there is likely to be more talk of phasing out Russian oil and natural gas. European Council President Charles Michel told the European Parliament on Wednesday that measures on “oil and even gas will also be required sooner or later”.

Although the gas market saw the first injection of stocks a week ago, the US government inventory report due later in the day is likely to reflect another pullback. Estimates ahead of Thursday’s Energy Information Administration (EIA) report are for a breakeven in the high range of 20 billion cubic feet.

Technically, the price continues to rise amid the dominance of the main bullish trend in the medium term along a slope line, with the continuation of the positive support for its trading above its simple moving average for the previous 50 days, to prepare the stock for its recent rise to attack the pivotal resistance level 6.412, as shown in the attached chart for a period of time.

However, despite these positive signs, we notice the start of a negative crossover on the RSIs, after they reached overbought areas, and we notice that a negative candlestick pattern was drawn yesterday, which suggests signs of weakness in the price’s continued rise.

Therefore, we expect natural gas to rise during its upcoming trading, to target the pivotal resistance level 6.412. But we do not expect the possibility of breaching that resistance, unless we witness a correction during which the price gathers its positive forces and disposes of some of its excess.