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
GBPJPY Daily
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
GBPJPY 4 hour
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
GBPJPY 1 hour
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.