Top Story

GBP/JPY one to watch amid market risks in the week ahead

On Friday, US equity markets stabilized and began to recover from the sharp plunge in stocks a day earlier. Volatility returned to lower levels and Thursday’s strong demand for safe-haven assets diminished significantly as of mid-day Friday. Heightened market volatility was initially sparked by widespread worries that the Trump Administration’s pro-business agenda would be disrupted by President Trump’s recent controversial remarks and his dramatic loss of support from both business and government leaders. These worries were partly ameliorated on Friday after reports that Steve Bannon, one of Trump’s top and most divisive advisors, would be dismissed from the team. This increases the chances that Trump’s chief economic advisor, Wall Street veteran Gary Cohn, would remain in his position as the most important pro-business voice in the administration.

The rebound for stocks and diminishing volatility on Friday understandably dealt a blow to safe-haven assets like gold and the Japanese yen. In the case of the GBP/JPY currency pair, price initially fell towards its next major target at the 139.00 support level on increased yen demand, but reversed those losses as equity markets rebounded and yen demand weakened on Friday. Though Bannon’s dismissal may have given the markets some relief for the time being, support for President Trump from business and government leaders has still been severely damaged, perhaps irreversibly. In addition to these Trump concerns, other geopolitical risks – most notably the North Korean nuclear threat – have not disappeared but have merely faded into the background. Therefore, while market concerns have pulled back on Friday, it is likely just a matter of time before risk worries surrounding current geopolitical conditions rise once again and the yen surges in response.

For GBP/JPY any such yen surge would contribute to an extension of the current breakdown and bearish bias. For its part, the pound has been weakening sharply within the past few weeks, pressured by a dovish-leaning Bank of England during its latest meeting. Next week, amid a relatively light economic calendar, the most important data release for currency markets will likely be the UK’s quarterly GDP report, scheduled for release on Thursday.

Amid sustained pressure on sterling, along with the possibility that elevated risk concerns and market volatility return next week, GBP/JPY continues to be biased to the downside after its recent breakdowns. The latest of these breakdowns occurred after a bearish flag pattern, during which the currency pair dropped below both the key 142.00 level as well as its 200-day moving average. Currently, GBP/JPY is targeting the next major downside objective around the key 139.00 level, last hit in mid-June, with a further bearish target around the 137.00 support level.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account