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 seemed 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 a “higher-er for longer” one.
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 last week intervened twice to smooth the rise in yields ultimately weighing on the JPY.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see the big downward spike following the leak from Nikkei about the BoJ’s intention to tweak the YCC the day prior to the decision and then the big rally following the actual tweak. This may have been a “sell the fact” reaction or the market expected something more, it’s not clear. What’s clear is that the BoJ intervened in the bond market twice last week weakening again the JPY. This is leading to a choppy price action as the market struggles to find a clear direction.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that GBPJPY has been confined in a range between the 179.92 support and the 182.50 resistance. The price is now breaking above the resistance zone and the buyers look determined to push it into the 184.00 handle. A lot will depend on the economic data, but for now the bullish momentum is prevailing.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance at 183.00. If the price breaks above it, we can expect more buyers piling in to extend the rally into the 184.00 handle. The sellers, on the other hand, will want to see the price breaking below the 182.25 level to confirm a fakeout and start targeting the bottom of the range at 179.92.
Upcoming Events
This week the main event will be the US CPI report on Thursday. The market is likely to focus more on the Core readings as this is what the Fed is more interested in. Higher than expected data may weigh on global bond yields and lead to a depreciation in the JPY given the BoJ’s dovish stance. On the other hand, lower than expected readings may have an inverse effect and give the JPY a boost. At the same time of the US CPI data, we will also see the latest US Jobless Claims report. The market cares a lot about the labour market data, so big surprises should affect the market as a whole. Finally, we conclude the week with the University of Michigan Consumer Sentiment report on Friday where the market is likely to focus more on the inflation expectations figures.
