GBP/USD: Trading The UK Average Earnings Index

UK Average Earnings Index, released each month, is a leading indicator of consumer inflation. A reading which is higher than the market forecast is bullish for the pound. Here are all the details, and 5 possible outcomes for GBP/USD.

Indicator Background

The Average Earnings Index measures wage growth and is closely watched by analysts, and as a key indicator, an unexpected reading can have a significant effect on the movement of GBP/USD.

Wage growth has been dipping, and fell to 2.2% in January. This was below the estimate of 2.4% and its weakest gain since April 2016. The downturn is expected to continue, with the February estimate at 2.1%.

Sentiments and levels

The US economy remains solid and the markets have circled June for the next Fed rate hike. Britain finally triggered Article 50, and tough negotiations between the UK and the EU could weigh on the pound. So, the overall sentiment is bearish on GBP/USD towards this release.

Technical levels, from top to bottom: 1.2775, 1.2548, 1.2345, 1.2213, and 1.2080.

5 Scenarios

Within expectations: 1.6% to 2.6%. In this scenario, GBP/USD could show some slight fluctuation, but it is likely to remain within range, without breaking any levels.

Above expectations: 2.7% to 3.1%: A stronger reading than predicted could push the pair above one resistance line.

Well above expectations: Above 3.1%: An unexpectedly sharp rise could push GBP/USD upwards, with a second line of resistance at risk.

Below expectations: 1.1% to 1.5%: A lower than expected reading could pull the pair downwards, with one support level at risk.

Well below expectations: Below 1.1%: In this scenario, the pair could break below a second support level.