The BoE hiked by 25 bps as expected as the UK CPI missed expectations across the board and UK employment report showed a mixed picture with both the unemployment rate and wage growth higher. The central bank seems to be leaning more on the less hawkish side as a key line in the statement was tweaked to indicate the propensity for a “higher for longer” stance rather than keeping with additional rate hikes. Yesterday, the latest employment report showed even more wage growth despite the unemployment rate ticking higher again and today the UK CPI beat expectations pointing to a stagflationary scenario. The BoE will hike by another 25 bps in September.
On the other hand, the BoJ kept everything unchanged as expected but implicitly tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%. So, they basically widened the YCC band without stating it explicitly. This has created lots of volatility in the JPY, but eventually led to a fast depreciation. The BoJ has also already intervened twice to smooth the rise in yields and last week the wages data missed expectations ultimately weighing on the yen.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPJPY has eventually broke the last high around the 184.00 handle, but we are starting to see a divergence with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, it will be a matter of what the market is more focused on: the stagflation and the UK inevitably falling into a bad recession should send the pair lower; more rate hikes from the BoE though should send it higher.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the bullish trend is defined by the moving averages and the trendline. These levels will be important as a break lower should see the sellers piling in aggressively and take the pair lower. The buyers should lean on the trendline at every pullback to target new higher highs.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have 3 different options here:
- The buyers can lean on the trendline and the 38.2% Fibonacci retracement level with a stop below the 184.00 support.
- The buyers can lean on the 61.8% Fibonacci retracement level around the 184.00 support with an even better risk to reward setup.
- The sellers will start to pile in aggressively if the price breaks below the 184.00 support as the recent breakout above the high will turn into a fakeout.
Upcoming Events
This week is a bit empty on the data front and the most important release will be the US Jobless Claims tomorrow. Readings in line with expectations shouldn’t be market moving but big deviations should offer strong reactions. In fact, in case we see a big beat, we can expect the JPY to depreciate across the board as the market is likely to expect more rate hikes from the central banks. On the other hand, a big miss is likely to strengthen the JPY as it should cause recessionary fears and make the market bring forward rate cuts.
