GBPJPY Goes Down
It’s been another very interesting week in financial markets. We’ve seen plenty of key data releases with inflation and retail sales readings for both the US and the UK along with chatter of possible BOJ market intervention. Commodities and equities prices has been back on the ropes amidst a sharp pick up in bond yields and we’ve seen gold prices falling to new lows on the year. However, chatting with FX traders ahead of the weekend, it seems the move that people are most focused on is the almost 3% drop (just under 500 pips) in GBPJPY. So, let’s take a look at what caused the move and, as always, if you caught it? Well done! If you missed it? There’s always next week.
What Caused the Move?
UK Growth Fears Hit GBP
The first part of this story is linked to weakness in GBP. Growth fears have returned in force this week for the UK ahead of next week’s BOE meeting. With August inflation seen at 9.9%, only a very mild drop from the prior month’s 10.1% reading, expectations of further BOE tightening are firmly anchored. With the UK still in the full throes of the cost of living crisis, the combination of increased BOE tightening and inflation still at extreme levels is darkening the near-term outlook for the Pound.
This view was further reinforced later in the week as UK retail sales were seen dropping to -1.6% last month. This was well below the prior month’s 0.3% reading and sharply below estimates for a -0.5% result. Given the importance of retail sales in calculating overall GDP, the data has re-sharpened concerns around UK growth putting GBP back under pressure.
JPY Rallies on Safe-Haven Demand & Intervention Chatter
While GBP has been falling this week, JPY has seen a fresh show of strength. One part of this has been the function of the risk averse tone which swept across markets in response to US inflation data on Tuesday. With equities and commodities tanking, JPY saw a fresh surge of safe-haven demand. These moves were then amplified mid-week by reports that the BOJ had been conducting a rate check on the market, said to be a precursor to a proper intervention. Comments from Japanese Fin Min Suzuki confirmed that the BOJ was indeed looking at such measures, again helping drive support for JPY on the back of months of unchecked declines.
Technical Views
GBPJPY
The reversal in GBPJPY this week came just ahead of a test of the 163.39 level. Price has now fully reversed the breakout above the 163.18 level and, with MACD and RSI turning quickly bearish, focus is now on a further push lower down towards the 159.98 level next, ahead of a test of the longer term bull channel lows.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.