UK
- The BoE kept interest rates unchanged as expected last week.
- The central bank is leaning towards keeping interest rates “higher for longer”, although it keeps a door open for further tightening if inflationary pressures were to be more persistent.
- BoE Governor Bailey repeated that they will keep rates high for long enough to get inflation back to target.
- The latest employment report showed a slowdown in wage growth and some job losses in September which are pointing to a softening labour market.
- The recent UK CPI slightly beat expectations but given the softening in the labour market it’s unlikely to change the BoE’s stance.
- The UK PMIs showed further contraction in the services sector, which accounts for 80% of UK’s economic activity.
- The market doesn’t expect the BoE to hike anymore.
Japan
- The BoJ kept its monetary policy basically unchanged but formally widened the YCC to 1% on the 10-year JGBs stating that it will be a reference cap.
- Governor Ueda repeated once again that they won’t hesitate to take easing measures if needed and that they are not foreseeing sustainable price increases.
- The recent Japanese CPIshowed that inflationary pressures remain high with the core-core reading hovering at the cycle highs.
- The Unemployment Rate remained unchanged near cycle lows.
- The Japanese Manufacturing PMI matched the prior reading remaining in contraction with the Services PMI falling but holding on in expansion.
- The latest Japanese wage data beat expectations. As a reminder the BoJ is focusing on wage growth to decide when to tweak its monetary policy.
- The market expects the BoJ to keep interest rates unchanged at the next meeting as well.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the GBPJPY pair broke above the resistance zone around the 183.50 level and extended the rally eyeing the cycle high at 186.74. We can expect the sellers to step in around the cycle high with a defined risk above it to position for a drop back into the resistance turned support.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is now sitting around a strong support where we can find the confluence with the trendline, the red 21 moving average and the 38.2% Fibonacci retracement level. This is where the buyers are likely to step in with a defined risk below the trendline to position for another rally into the cycle high. The sellers, on the other hand, will want to see the price breaking below the support to invalidate the bullish setup and target a drop towards the 183.00 handle.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the bullish setup with the price now getting compressed around the 185.00 handle. A break above the downward counter-trendline should trigger more buying pressure and lead to a rally into the cycle high. On the other hand, a break below the 184.65 support should trigger a drop into the 183.00 handle.
Upcoming Events
This week is pretty empty on the data front with just the US Jobless Claims tomorrow and the University of Michigan Consumer Sentiment on Friday being the only notable events. The market is likely to focus on the US Jobless Claims given the recent weakness in the labour market data. Strong data is likely to lead to a rise in global yields and weigh again on the JPY, while weak figures should boost the JPY and push the GBPJPY lower.
