GBP/USD price rising wedge point hints at potential reversal

Written by: Crispus Nyaga
January 26, 2021
  • The GBP/USD price has formed a rising wedge pattern, which is usually bearish.
  • The pair rose today after the strong employment numbers from the UK.
  • Analysts warn that unemployment rate will rise when the Furlough scheme ends.

The GBP/USD bounced back after the relatively strong UK jobs numbers. The pair rose to an intraday high of 1.3700, which is higher than the intraday low of 1.3608.

GBP/USD
GBP/USD price action

Strong UK jobs numbers

The Office of National Statistics (ONS) delivered relatively strong jobs numbers earlier today. The data showed that the overall UK unemployment rate rose from 4.9% in October to 5.0% in November. This figure was better than the average estimate of 5.1%. It is also better than the average EU average of 7.6%.

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In the same month, the average earnings without bonus increased by 3.6% from the previous 2.8%. With bonuses included, wages increased by 3.6%. This happened as more companies increased their wages to cater for their workers’ hardships.

Meanwhile, in December, the number of people filing for unemployment claims increased by just 7.0%, better than the expected 35,000.

Still, analysts believe that the worse will happen for the UK economy. For one, the low unemployment rate is partly because of the government furlough program, which is helping employers pay their salaries. Therefore, as the program expires in April, economists believe that the rate will increase. In a note, analysts at ING said:

“But with the furlough scheme due to end in April, there’s a risk we see the jobless rate rise towards the 6-7% region if support is removed before all sectors have fully reopened. Higher costs/trade barriers that have arisen from the new UK-EU deal will also add pressure on hiring.”

In fact, there are signs that more than 20,000 retail jobs will be lost in the immediate term. This week, Boohoo acquired the Debenham’s online platform, putting more than 10,000 jobs at risk. Similarly, Asos bought online platforms from the defunct Arcadia Group, putting more retail jobs at risk.

GBP/USD technical outlook

GBP/USD
GBP/USD technical chart

The four-hour chart shows that the GBP/USD pair first dropped after the impressive jobs numbers. It reached an intraday low of 1.3608, which is along the ascending blue trendline. The price is also slightly above the 15-day and 25-day weighted moving averages. Most importantly, the GBP/USD price is forming an ascending wedge pattern.

Therefore, while the uptrend may remain for now, the wedge is usually an early signal of a reversal. As such, you should use the risk management tools provided by your forex broker to minimise your exposure.