Forex Market: GBP/JPY daily trading forecast

Friday’s trade saw GBP/JPY within the range of 192.85-194.38. The pair closed at 193.67, down 0.07% on a daily basis, or the first loss in the past five trading days. The daily high has also been the highest level since June 26th, when the cross registered a high of 195.28.

At 8:09 GMT today GBP/JPY was up 0.11% for the day to trade at 193.63. The pair touched a daily high at 193.95 at 7:48 GMT.

No relevant macroeconomic reports are scheduled for release from the United Kingdom and Japan today.

Possible rate hike by the end of 2015

During a speech at the Lincoln Cathedral on Thursday, BoE Governor, Mark Carney, indicated that the central banks decision on the rate hike will probably become a fact by the end of 2015, while monetary policy tightening is expected to be in a gradual manner. According to extracts from that speech: ”In my view, with the healing of the financial sector and the lessening of some of the headwinds facing the economy, that concern has become less pressing with the passage of time. As I made clear in my first open letter in February, were downside risks to inflation to materialise the MPC could decide either to expand the Asset Purchase Facility or to cut Bank Rate further towards zero from its current level of 0.5 per cent. In the current circumstances there is no need to wait to raise rates because of a risk management approach and run the risk of inflation overshooting target.”

”It also seems likely that the equilibrium interest rate will move only slowly back up towards historically more ‘normal’ levels. Everything else equal, that suggests a prospective tightening cycle that, once it starts, will be longer and shallower than those of the past. In other words, we expect Bank Rate increases to be gradual, and limited to a level below past averages.”

”It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historical averages. In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year.”

Japan celebrates the Marine Day holiday

Known as “Ocean Day” or “Sea Day”, the Marine Day holiday is observed by the Japanese people on every third Monday in the month of July. On this day the Japanese give thanks to the oceans bounty, which is meant to underscore how vital the ocean for the island nation is.

Banks in Japan are to remain closed.

Correlation with other currency pairs

Taking into account the week ended on July 19th and the daily closing levels of the currency pairs involved, we come to the following conclusions in regard to the strength of relationship:

GBP/JPY to GBP/USD (0.8777, or very strong)
GBP/JPY to USD/CAD (0.7878, or strong)
GBP/JPY to USD/JPY (0.7475, or strong)
GBP/JPY to USD/CHF (0.5089, or moderate-to-strong)
GBP/JPY to AUD/USD (-0.3248, or moderate)
GBP/JPY to EUR/USD (-0.6946, or strong)
GBP/JPY to NZD/USD (-0.7496, or strong)

1. During the examined period GBP/JPY moved almost equally in one and the same direction with GBP/USD.

2. GBP/JPY moved strongly in one and the same direction with USD/CAD and USD/JPY during the past week.

3. GBP/JPY moved strongly in the opposite direction compared to EUR/USD and NZD/USD during the period in question.

4. The relation between GBP/JPY and USD/CHF was moderate.

Bond Yield Spread

The yield on Japanese 2-year government bonds went as high as 0.010% on July 17th, after which it closed at the same level to show no change on a daily basis.

The yield on UK 2-year government bonds climbed as high as 0.659% on July 17th, after which it fell to 0.641% at the close to gain 2.8 basis points (0.028 percentage point) for the day.

The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.631% on July 17th from 0.598% during the prior day. The July 17th spread has been the most notable one since June 26th, when the difference was 0.680%.

Meanwhile, the yield on Japanese 10-year government bonds soared as high as 0.455% on July 17th, after which it slid to 0.445% at the close to lose 1 basis point (0.01 percentage point) compared to July 16th, while marking a second straight day of decrease.

The yield on UK 10-year government bonds climbed as high as 2.105% on July 17th, after which it slipped to 2.079% at the close to lose 1 basis point (0.01 percentage point) on a daily basis, while marking a second consecutive day of decrease.

The spread between 10-year UK and 10-year Japanese bond yields rose to 1.634% on July 17th from 1.627% during the prior day. The July 17th yield difference has been the highest one since July 15th, when the spread was 1.669%.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 193.63. In case GBP/JPY manages to breach the first resistance level at 194.42, it will probably continue up to test 195.16. In case the second key resistance is broken, the pair will probably attempt to advance to 195.95.

If GBP/JPY manages to breach the first key support at 192.89, it will probably continue to slide and test 192.10. With this second key support broken, the movement to the downside will probably continue to 191.36.

The mid-Pivot levels for today are as follows: M1 – 191.73, M2 – 192.50, M3 – 193.26, M4 – 194.03, M5 – 194.79, M6 – 195.56.

In weekly terms, the central pivot point is at 192.31. The three key resistance levels are as follows: R1 – 195.74, R2 – 197.80, R3 – 201.23. The three key support levels are: S1 – 190.25, S2 – 186.82, S3 – 184.76.