UK:
- The BoE hiked by 25 bps as expected at the last meeting.
- 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.
- Recent key economic data like the latest employment report showed even more wage growth despite the unemployment rate ticking higher again, and the UK CPI beat expectations pointing to stagflation.
- The UK PMIs missed expectations across the board with the Services sector plunging into contraction.
- The market expects the BoE to hike by 25 bps at the upcoming meeting.
Japan:
- The BoJ kept everything unchanged as expected at the last meeting but implicitly tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%.
- The Japanese CPI data surprised to the upside recently with the core-core reading reaching again the previous high.
- The Unemployment Rate surprisingly jumped to 2.7% although it remains near the lows.
- BoJ’s Governor Ueda at the Jackson Hole Symposium reaffirmed that inflation is still below target and that’s why they’re sticking with their monetary easing. This was also echoed by other BoJ members, but they are starting to see the light at the end of the tunnel.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPJPY is consolidating on the key 184.00 support as the market is caught between the recessionary fears and the uncertainty on the UK rates. We can also see that the last push to the upside diverged with the MACD, and this is generally a sign of weakening momentum often followed by pullbacks or reversals. The level to watch for the sellers will be the 184.00 support and the trendline as a break below them should give way to a selloff into the 176.32 level.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that from a risk management perspective, the buyers will be better off to wait for the price to come into the trendline and the 38.2% Fibonacci retracement level as they will have a much better risk to reward setup and can fold quickly if the price continues lower invalidating the bullish case. For now, it’s all about waiting as the price remains stuck in a range.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the range between the 184.00 support and the 186.00 resistance. If the price breaks to the upside, we should see more buyers piling in to extend the rally into a new high. Vice versa, if the price breaks lower, the sellers will pile in to target the trendline first and eventually a break below it.
Upcoming Events
This week is a bit empty on the data front with just the US ISM Services PMI today and the US Jobless Claims tomorrow being the main highlights. If we see strong data, the market is unlikely to price an imminent recession and GBPJPY is likely to remain rangebound. On the other hand, weak data should bring back recessionary fears and depress global yields and ultimately favouring the JPY. We conclude the week with the Japanese wage data on Friday which is a key metric for the BoJ and its policy discussions. The last time, the data missed expectations and weakened the yen.
