Forex Market: GBP/JPY daily trading forecast

Friday’s trade saw GBP/JPY within the range of 191.27-193.78. The pair closed at 191.54, plunging 1.06% on a daily basis, or the most significant daily loss since July 8th, when it fell 2.12%. Friday was the third consecutive trading day of losses. The daily low has also been the lowest level since July 27th, when the cross registered a low of 190.96. GBP/JPY lost 1.50% during the week ended on August 23rd, which has been the most notable weekly decline since the week ended on July 5th.

At 9:56 GMT today GBP/JPY was losing 1.15% for the day to trade at 189.29. The pair touched a daily low at 188.46 at 7:50 GMT. It has been the lowest level since July 10th, when a daily low of 186.42 was reached.

No relevant macroeconomic reports and/or events are scheduled for today.

Boosted Safe Haven Demand

Demand for safe haven currencies such as the yen was bolstered on Monday, as shares in China plummeted 9% amid fears of a global macroeconomic slowdown led by China. “Markets are panicking. Things are starting look like the Asian financial crisis in the late 1990s. Speculators are selling assets that seem the most vulnerable,” said Takako Masai, head of research at Shinsei Bank in Tokyo, cited by Reuters.

A private report last week showed a further drop in Chinese manufacturing activity, with the preliminary manufacturing Purchasing Managers’ Index sliding to a 77-month low of 47.1 in August, worse than a projected drop to 47.7 from 47.8 in July, as both domestic and export demand decreased at a faster pace. The flash China General Manufacturing Output Index came in at a 45-month low of 46.6 from 47.1 in July.

Over 800 shares, which are included in the Shanghai Composite Index, dropped at the daily limit of 10%. The index closed at 3,209.91 on Monday, falling 8.5% on a daily basis and wiping out gains achieved during the year.

“This is a real disaster and it seems nothing can stop it,” said Chen Gang, chief investment officer at Heqitongyi Asset Management Co in Shanghai, cited by Bloomberg. “If we don’t cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive.”

Correlation with Major currency pairs

Taking into account the week ended on August 23rd 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 USD/JPY (0.9415, or very strong)
GBP/JPY to USD/CHF (0.8499, or very strong)
GBP/JPY to AUD/USD (0.5773, or strong)
GBP/JPY to GBP/USD (-0.3848, or moderate)
GBP/JPY to NZD/USD (-0.8545, or very strong)
GBP/JPY to USD/CAD (-0.8719, or very strong)
GBP/JPY to EUR/USD (-0.9464, or very strong)

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

2. GBP/JPY moved strongly in one and the same direction compared to AUD/USD during the past week.

3. The correlation between GBP/JPY and GBP/USD was moderate.

4. GBP/JPY moved almost equally in the opposite direction compared to NZD/USD, USD/CAD and EUR/USD during the period in question.

Bond Yield Spread

The yield on Japanese 2-year government bonds went as high as 0.007% on August 21st, after which it slid to 0.006% at the close to remain unchanged on a daily basis.

The yield on UK 2-year government bonds climbed as high as 0.564% on August 21st, or the highest level since August 19th (0.601%), after which it fell to 0.503% at the close to lose 4.1 basis points (0.041 percentage point) for the day, while marking a third straight trading day of decline.

The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, narrowed to 0.497% on August 21st from 0.538% during the prior day. The August 21st yield difference has been the lowest one since July 7th, when the spread was 0.468%.

Meanwhile, the yield on Japan’s 10-year government bonds soared as high as 0.363% on August 21st, after which it slid to 0.358% at the close to lose 0.004 percentage point compared to August 20th, while marking a second straight trading day of decline.

The yield on UK 10-year government bonds climbed as high as 1.750% on August 21st, after which it slipped to 1.698% at the close to lose 6.9 basis points (0.069 percentage point) on a daily basis, while marking a third consecutive day of decrease.

The spread between 10-year UK and 10-year Japanese bond yields narrowed to 1.340% on August 21st from 1.405% during the prior day. The August 21st yield difference has been the lowest one in more than two months.

Daily and Weekly Pivot Levels

By employing the Camarilla calculation method, the daily pivot levels for GBP/JPY are presented as follows:

R1 – 191.77
R2 – 192.00
R3 (range resistance – green on the 30-minute chart) – 192.23
R4 (range breakout – red on the 30-minute chart) – 192.92

S1 – 191.31
S2 – 191.08
S3 (range support – green on the 30-minute chart) – 190.85
S4 (range breakout – red on the 30-minute chart) – 190.16

By using the traditional method of calculation, the weekly pivot levels for GBP/JPY are presented as follows:

Central Pivot Point – 192.71
R1 – 194.14
R2 – 196.75
R3 – 198.18

S1 – 190.10
S2 – 188.67
S3 – 186.06