UK Jobless claims are expected to remain flat in December after falling 1.2k in November. The claimant count is also expected to stay stable at 4.5%. Sterling has in recent days seen an aggressive rally on expectations that interest rates will have to go up to combat inflationary pressures. However today’s news could see a correction in Sterling’s gains as the currency stands at a crossroads ahead of what is expected to be a dismal jobless claims report.

UK Consumer prices have risen to 3.7% in December from 3.3% in the previous month, the expectation is that inflation will rise to above 4% as soon as February with the VAT rise set to add more pressure.

The ILO employment report last month showed that the ILO rose to 7.9% in the three months to October. The expectation is that with the current severe austerity measures in place and the toughest government spending cuts seen World War 2, we will probably see unemployment rise in the coming months.

Last month when jobless claims came in less than expected Sterling lost ground against most of the majors. We would expect any figure announced today in excess of the 4k mark to halt the pounds rally and confirm a new bearish outlook for this week. A retracement to fib levels would be expected on this kind of news.

The GBP/USD pair has seen significant gains in the past week on UK interest rate speculation, however a much needed correction is likely and any test and break of the 1.58 trend resistance would signal a technical reversal, indicating that the bulls in the market have turned bearish.

The GBP/EUR pair remains a harder pair to second guess. The pair is in balance and suffers from volatility associated with ongoing concern over inflation in both the Uk economy and the Eurozone and current fears over the spread of sovereign debt throughout the Eurozone.

If you have a currency requirement and have any questions or queries with reference to the markets please don’t hesitate to contact me.

“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”

Best Regards
Luke Zorab