Yesterday’s trade saw GBP/JPY within the range of 192.24-194.02. The pair closed at 193.56, surging 0.42% on a daily basis, which has been the most considerable daily gain since July 14th, when it appreciated 0.90%, and also the first gain in the past three trading days. The daily high has also been the highest level since July 17th, when the cross registered a high of 194.38.
At 7:43 GMT today GBP/JPY was up 0.14% for the day to trade at 193.82. The pair touched a daily high at 193.90 at 6:35 GMT.
Fundamentals
United Kingdom
Retail Sales
Annualized retail sales in the United Kingdom probably rose at a rate of 4.9% in June, according to the median forecast by experts, after in May sales increased by another 4.6%. If so, this would be the 27th consecutive month of sales growth and also the sharpest rate of increase since February 2015, when retail sales climbed at an annualized rate of 5.4%. In monthly terms, retail sales probably increased 0.3% during June, following another 0.2% climb in May. Annualized retail sales, without taking into account fuel sales, probably rose 5.0% in June, following a 4.4% surge in May. If so, this would be the 38th consecutive month of growth in annual core sales and also the fastest rate of increase since March, when the indicator rose 5.0%.
This is a short-term indicator, which provides key information about consumption on a national scale. Higher retail sales suggest stronger consumer demand, confidence and economic growth, respectively. Therefore, in case the index of retail sales increased at a faster-than-projected pace, this would be pound positive. The Office for National Statistics is expected to publish the official report at 8:30 GMT.
BBA Home Loans
The number of home loans in the United Kingdom, issued by the British Bankers’ Association (BBA), probably increased to 43 500 in June, according to expectations, from 42 500 in May. If so, this would be the highest number of home loans since March 2014, when 45 000 loans were issued. The BBA features the major banks in the country, which account for almost 60% of overall mortgage lending. The number of mortgage loans is considered as a leading indicator in regard to UK housing market conditions. As growth in mortgage lending signifies a healthy housing sector, which also contributes to overall economic activity, in case the number of loans rose more than projected, this would boost demand for the sterling. The BBA is to publish the official figure at 8:30 GMT.
Bond Yield Spread
The yield on Japanese 2-year government bonds went as high as 0.013% on July 22nd, or the exact level as recorded a day ago, after which it slid to 0.005% at the close to lose 0.004 percentage point on a daily basis.
The yield on UK 2-year government bonds climbed as high as 0.664% on July 22nd, after which it fell to 0.650% at the close to gain 1.1 basis points (0.011 percentage point) for the day, while marking a second consecutive day of increase.
The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.645% on July 22nd from 0.630% during the prior day. The July 22nd difference has been the most considerable one since June 26th, when the yield spread was 0.680%.
Meanwhile, the yield on Japans 10-year government bonds soared as high as 0.432 on July 22nd, or the highest level since July 17th (0.455%), after which it slid to 0.421% at the close to lose 0.006 percentage point compared to July 21st. It has been the fourth consecutive day of yield decrease.
The yield on UK 10-year government bonds climbed as high as 2.084% on July 22nd, after which it slipped to 2.033% at the close to lose 5.2 basis points (0.052 percentage point) on a daily basis.
The spread between 10-year UK and 10-year Japanese bond yields narrowed to 1.612% on July 22nd from 1.658% during the prior day. The July 22nd yield difference has been the lowest one since July 9th, when the spread was 1.543%.
Taking into account the period January-June 2015 and basing our calculations on weekly closing prices, we came to the conclusion that GBP/JPY performance and the development of the yield spread between 10-year bonds in the United Kingdom and Japan showed a correlation of 0.8556, or the pair and the yield spread moved very strongly in one and the same direction. As the yield spread grew in favor of the 10-year UK bonds, the pound gained ground against the yen. During the period January-June, GBP/JPY has appreciated 6.06%, while the spread between 10-year bond yields in both countries has widened 24.35% to reach approximately 1.62% in late June from approximately 1.31% in early January.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 193.27. In case GBP/JPY manages to breach the first resistance level at 194.31, it will probably continue up to test 195.05. In case the second key resistance is broken, the pair will probably attempt to advance to 196.09.
If GBP/JPY manages to breach the first key support at 192.53, it will probably continue to slide and test 191.49. With this second key support broken, the movement to the downside will probably continue to 190.75.
The mid-Pivot levels for today are as follows: M1 – 191.12, M2 – 192.01, M3 – 192.90, M4 – 193.79, M5 – 194.68, M6 – 195.57.
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.
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