Half way through the week, here we are on this Wednesday morning 30 minutes before the UK employment figures are released. Looking at the charts of the forex majors and forex crosses, we can say that the market has been pretty quiet overnight. JPY is the biggest mover with around 50 pips, probably on risk aversion sentiment after the Chinese miss in the industrial production during the Tokyo trading session. 

For the European session, the most important release will be the UK employment report. The Pound felt some love yesterday for the first time in a while and that came from the impressive UK inflation report. Now let´s see if the employment data coming next will have the same impact. 

The unemployment claims which in the UK are referred to as claimant count change and the unemployment rate are expected to remain around the same levels as in the previous month. Any meaningful deviation in the numbers would be welcomed by the market and we´ll likely see some action in the market, but in my opinion, I don´t think we will see a substantial deviation to affect the market to that extent. 

This opinion is formed based on the UK economic data that´s been released in the last several weeks. Apart from the first half of August when the Brexit panic kicked in, the rest of the data from the UK has shown that things quickly turned back to normality and the business is again in a relatively good shape.

That said, some international financial institutions are holding back on new staff hiring in London. Societe Generale and another bank which I can´t recall the name right now announced that they will halt or reduce the workforce in their London offices until Brexit terms are clear. This is a dangerous game for the UK because once the snowball starts rolling you can´t stop it and this is what most feared after the Brexit referendum, a shift of the financial services from London to Frankfurt or Paris. 

Anyway, the most important part of the release will be the average earnings index 3m/y. This was an important component of the employment report before the referendum as well. That´s because the earnings (wages, salaries etc) have a direct impact on the everyday economy of the country, higher wages this month means higher spending the next month. The relation with the real economy is very close, while a 1% move in the unemployment numbers doesn´t really have any impact on the real economy.

So, earnings are expected to grow by 2.3%, the same as previously, which would be seen as a positive sign that the real economy is not affected by Brexit. But looking at the price action right now, I can see that a positive employment report is already being priced in by the market as GBP/USD moves about 50 pips higher from the lows, so be careful even if the numbers are satisfying.

If the market is pricing in some positive data, thus sending the GBP pairs higher, then after the release everyone will try to close their positions and eventually sinking the GBP, so be careful out there. and play it safe. Personally, I don´t see much more room on the upside where this report can take the GBP.