Yesterday’s trade saw GBP/JPY within the range of 192.22-194.53. The pair closed at 194.32, surging 0.91% on a daily basis, or the most considerable daily gain since July 10th, when it appreciated 2.12%. GBP/JPY lost 0.59% during the week, which ended on August 9th, following a 0.81% gain in the preceding week.
At 9:20 GMT today GBP/JPY was up 0.15% for the day to trade at 194.62. The pair touched a daily high at 194.92 at 8:00 GMT, testing the range resistance level (R3). It has been the highest level since August 6th, when a daily high of 195.28 was reached.
Today the cross may be influenced by a number of macroeconomic releases as listed below.
Fundamentals
Japan
BoJ Policy Meeting Minutes
At 23:50 GMT Bank of Japan will release the minutes from its meeting on policy, held on August 7th. The minutes offer detailed insights on central bank’s monetary policy stance. This release is closely examined by traders, as it may provide clues over interest rate decisions in the future. Moderate-to-high volatility is usually present after the publication. In case the minutes show a hawkish outlook, this will usually support the yen, while a dovish outlook will usually have a bearish effect on the national currency.
At its most recent meeting Bank of Japan kept its pledge to expand the monetary base at about JPY 80 trillion annually. The bank’s Policy Board decided by an 8-1 vote to buy exchange-traded funds (ETFs) and Japan real estate investment trusts (J-REITs), in order to boost their amounts outstanding by about JPY 3 trillion yen and by about JPY 90 billion per year respectively.
According to extracts from Bank of Japan’s Policy Statement: “With regard to the outlook, Japan’s economy is expected to continue recovering moderately. The year-on-year rate of increase in the CPI is likely to be about 0 percent for the time being, due to the effects of the decline in energy prices.”
“Risks to the outlook include developments in the emerging and commodity-exporting economies, the prospects regarding the debt problem and the risk of low inflation rates being protracted in Europe, and the pace of recovery in the U.S. economy.”
“Quantitative and qualitative monetary easing (QQE) has been exerting its intended effects, and the Bank will continue with the QQE, aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will examine both upside and downside risks to economic activity and prices, and make adjustments as appropriate.”
Correlation with Major currency pairs
Taking into account the week ended on August 9th 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 (0.7567, or strong)
GBP/JPY to USD/JPY (0.7393, or strong)
GBP/JPY to USD/CAD (0.5517, or strong)
GBP/JPY to USD/CHF (-0.1583, or weak)
GBP/JPY to AUD/USD (-0.3033, or moderate)
GBP/JPY to EUR/USD (-0.6625, or strong)
GBP/JPY to NZD/USD (-0.9363, or very strong)
1. During the examined period GBP/JPY moved almost equally in the opposite direction compared to NZD/USD.
2. GBP/JPY moved strongly in the opposite direction compared to EUR/USD during the past week.
3. The correlation between GBP/JPY and USD/CHF was insignificant during the period.
4. GBP/JPY moved strongly in one and the same direction compared to USD/CAD, USD/JPY and GBP/USD. The strongest positive correlation was observed between GBP/JPY and GBP/USD.
Bond Yield Spread
The yield on Japanese 2-year government bonds went as high as 0.014% on August 10th, or the highest level since August 6th (0.014%), after which it slid to 0.009% at the close to lose 0.001 percentage point on a daily basis, while marking a third consecutive trading day of decline.
The yield on UK 2-year government bonds climbed as high as 0.648% on August 10th, or the highest level since August 6th (0.661%), after which it fell to 0.638% at the close to gain 5.1 basis points (0.051 percentage point) for the day. It has been the first gain in the past three trading days.
The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.629% on August 10th from 0.577% on August 7th. The July 10th difference has been the most considerable one since July 1st, when the yield spread was 0.687%.
Meanwhile, the yield on Japan’s 10-year government bonds soared as high as 0.420% on August 10th, after which it closed at the same level to lose 0.001 percentage point compared to August 7th, while marking a second straight trading day of decrease.
The yield on UK 10-year government bonds climbed as high as 1.933% on August 10th, after which it slipped to 1.932% at the close to add 8.4 basis points (0.084 percentage point) on a daily basis, while marking the first gain in the past three trading days.
The spread between 10-year UK and 10-year Japanese bond yields widened to 1.512% on August 10th from 1.427% on August 7th. The August 10th yield difference has been the largest one since August 5th, when the spread was 1.584%.
Daily and Weekly Pivot Levels
By employing the Camarilla calculation method, the daily pivot levels for GBP/JPY are presented as follows:
R1 – 194.53
R2 – 194.74
R3 (range resistance – green on the 1-hour chart) – 194.96
R4 (range breakout – red on the 1-hour chart) – 195.59
S1 – 194.11
S2 – 193.90
S3 (range support – green on the 1-hour chart) – 193.68
S4 (range breakout – red on the 1-hour chart) – 193.05
By using the traditional method of calculation, the weekly pivot levels for GBP/JPY are presented as follows:
Central Pivot Point – 193.23
R1 – 194.55
R2 – 196.60
R3 – 197.92
S1 – 191.18
S2 – 189.86
S3 – 187.81
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