Mortgage approvals in the U.K. are expected to improve for the seventh consecutive month in August , with economists forecasting a rise to 51.5K from 50.1K in July, and the rebound in bank lending is likely to reinforce an enhanced outlook for the nation as policy makers anticipate economic activity to improve throughout the second-half of the year.
Trading the News: U.K. Mortgage Approvals
What’s Expected
Time of release: 09/29/2009 08:30 GMT, 04:30 EST
Primary Pair Impact : GBPUSD
Expected: 51.5K
Previous: 50.1K
Effect the U.K. Mortgage Approvals report has had over GBPUSD for the past 2 months
| Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
| Jul 2008 | 09/01/2009 08:30 GMT | 50.1K | 50.1K | -63 | -130 |
| Jun 2008 | 07/29/2009 08:30 GMT | 47.0K | 47.6K | -18 | +2 |
July 2009 U.K. Mortgage Approvals
| Banks in the U.K. approved 50.1K mortgage loans in July, which is the highest since April 2008, and lending activity may continue to improve over the coming months as the Bank of England expands its asset purchase program to jump-start the ailing economy. The central bank held the benchmark interest rate at the record low and unexpectedly increased its emergency program to GBP 175B from GBP 125B as policy makers see a risk for a slower recovery, and the BoE may take additional steps to soften the landing of the economy as the annual rate of unemployment jumps to a 14-year high. The central bank said that the downturn in the labor market may hamper the prospects for a sustainable recovery as households curb their temperament to spend and increase their wiliness to save, and the MPC may ease policy further over the coming months in an effort to steer the nation out of the worst recession since the post-war period. | |
June 2009 U.K. Mortgage Approvals
| U.K. mortgage approvals increased 47.6K in June to a 14-month high, and lending activity may continue to improve throughout the second half of the year as the government takes unprecedented steps to shore up the banking system. As a result, BoE board member Andrew Sentance said that there may be “some evidence of positive growth in the second half of the year” as the housing market stabilizes, and went onto say that the central bank may adopt a “watching” policy stance as banks increase their willingness to lend. As the policy makers hold an improved outlook for the economy, demands for mortgage loans may continue to improve in the months ahead as potential home buyers take advantage of lower property prices however, the easing prices pressures may lead the central bank to take additional steps to stimulate the ailing economy as the MPC maintains a 2% target for inflation. |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement.
| Bullish Scenario: If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the GBP against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on GBPUSD ahead of the data release. | Bearish Scenario: |
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How to Trade This Event Risk
Mortgage approvals in the U.K. are expected to improve for the seventh consecutive month in August , with economists forecasting a rise to 51.5K from 50.1K in July, and the rebound in bank lending is likely to reinforce an enhanced outlook for the nation as policy makers anticipate economic activity to improve throughout the second-half of the year. The preliminary 2Q GDP reading encouraged an improved outlook for future growth as the economy contracted at a slower pace than initial expected, with private and public spending crossing the wires stronger than projected, and the extraordinary efforts taken on by the government should help to stem the downside risks for growth and inflation as the central bank holds the benchmark interest rate at the record-low and commits GBP 175B in asset purchases to steer the nation out of the worst recession since the post-war period. A report by the National Institute of Economic and Social Research showed the GDP forecast increased 0.2% in August to mark the first rise since May 2008, while the International Monetary Fund raised its growth outlook for the nation and expects the economy to expand at an annual rate of 0.2% in 2010, and the improvement in the economic landscape should help to bolster demands for mortgage lending as potential home buyers take advantage of lower property prices. However, Governor Mervyn King maintained a weakened outlook for the economy and continued to see a risk for a slower recovery as the banking system remains fragile, and the central bank may look to expand monetary policy further over the coming months as households face a weakening labor market paired with the slump in consumer credit. Nevertheless, Deputy Governor Charles Bean said downward wages pressures have helped to limit the drop in employment, and stated that the “rate of job losses might be starting to ease off” as policy makers anticipate economic activity to improve throughout the second-half of the year, and the enhanced outlook for the labor market paired with the rebound in household sentiment may support the stabilization in the housing market as home affordability in the U.K. improves. As a result, a rise home-loan approvals are likely to increase demands for the British pound as economic conditions improve however, as the final GDP reading and the consumer credit report for August are scheduled to cross the wires at the same time, we may see mixed reactions following the release as investors weigh the prospects for a sustainable recovery.
Expectations for a rise in mortgage lending favors a bullish outlook for the Cable, and price action following the release could set the stage for a long pound-dollar trade as growth prospects improve. Therefore, if approvals for home-loans rise to 51.5K or higher in August, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of GBP/USD. Once these conditions are met, we will place our initial stop at the nearby swing low or a reasonable distance, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in an effort to lock-in our profits.
On the other hand, fears of a protracted recovery paired with the rise in unemployment may continue to weigh on economic activity throughout the second half of the year, and an unexpected drop in mortgage approvals is likely to drag on the exchange rate as growth prospects falter. As a result, if approvals fall to 47.0K or lower from the previous month, we will favor a bearish outlook for Sterling, and will follow the same setup for a short pound-dollar trade as the long position mentioned above, just in reverse.
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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com
