UK unemployment set to remain steady

UK unemployment data is expected to show a slight increase in November with jobless claims set to increase by 7k, but slightly down on the 10k rise on the previous month.

On the ILO measure for the three months to October the unemployment rate is expected to stay at 7.8%, however there is a concern that some form of post-Olympic slump could see the rate edge up a little especially when considering some of the poor construction and manufacturing PMI data that we have seen in recent months, especially in the employment components.

Average earnings look also set to increase the squeeze on consumer incomes, especially when compared to underlying inflation, coming in at 1.9% on a rolling three month basis.

A speech today by Bank of England Chief economist Spencer Dale might give some clues as the Bank’s future thinking on the direction of policy, particularly “funding for lending” and the imminent likelihood of further QE.

News that the Greek debt buyback has attracted bids up to €32bn but at a slightly higher cost means that Greece’s notional debt level will only be reduced to 126.6% of GDP by 2020, and not 124% of GDP, meaning that the next steps to try and close the gap lie in the hands of Eurogroup finance ministers who have delayed a decision until Thursday morning at the EU Summit.

Given that the revised IMF “sustainable debt level” is 124% of GDP we can expect some more arm twisting at the EU level of outstanding Greek bond holders to get the “voluntary participation” up to the required level and thus ensure the IMF’s participation in the new plan, and thus unlock the next aid tranche and keep the debt train on the track awhile longer.

In the US the last FOMC meeting of 2012 is expected to see the Federal Reserve replace its soon to expire $45bn a month “operation twist” program with a new series of asset purchases starting in January next year.

Markets appear to be expecting further easing measures, over and above the $40bn of MBS purchases already committed to, simply because US politicians continue to squabble over a deal to cut spending and raise taxes, and there is a worry that there may well be no agreement by the time January 1st comes around.

For all this anticipation of additional Fed action today one asset is currently refusing to play ball and that is gold, which has been drifting lower which is rather perplexing. That could well change if the anticipation of additional open ended easing turns into reality, later this evening.

EURUSD – the current rebound needs to get back through the 1.3020 area to retarget the highs this month at 1.3125 and the larger resistance at 1.3175.
The key support remains at the 1.2880/90 level which is the 50% retracement of the up move from 1.2660 to last week’s high at 1.3125. A move below the 1.2880 level opens up a move back towards the trend line support from the 1.2050 low, which sits at 1.2820, and the 200 day MA at 1.2790.

GBPUSD – while the 1.6120/30 level caps the risk remains for a retest of the 1.6010 level. A break through 1.6120 retargets 1.6180, and then 1.6300.
A key support remains at 1.5980 and a break through here targets major trend line support at 1.5865 from the 1.5270 lows, the 200 day MA at 1.5870 as well as 1.5660.

EURGBP – trend line support at 0.8020 from the July lows at 0.7755 remains the key level for the uptrend to continue. A break below the 0.8010 level targets the November lows at 0.7960, while a move back through 0.8080 is needed to stabilise and target a move back towards 0.8130.

USDJPY – the US dollar remains stuck in the range between triple resistance at the 82.85 level with the base at 81.70. If we break below 81.60 then the potential is there for a move towards 80.50, and even 79.90.
We need a break above the 82.80 level to target a move towards the March highs above the 84.00 level.
Only below the 80.50 level suggests a move back towards the November lows at 79.00.