GBP/JPY carving out a bottom?

GBP dumped below 1.3000 in what looked like a mini flash crash. Bizarrely, this came just after the release of solid-looking UK wages data.

This morning saw European equity indices fall sharply with the DAX hitting a new multi-month low, before bouncing back noticeably. Risk assets were once again hit amid rising trade tensions. This followed reports that China is asking the Wold Trade Organisation (WTO) to authorise trade sanctions on the US. In FX, the GBP/USD dumped below 1.3000 in what looked like a mini flash crash. Bizarrely, this came just after the release of solid-looking UK wages data. According to the ONS, average earnings excluding bonuses rose 2.9% in three months to July on a year-over-year basis. This beat expectations for 2.8% and last month’s print of 2.7% last. Including bonuses, earnings rose 2.6%, which was likewise above expectations and the previous print of 2.4% respectively. The euro also gave up its earlier gains and fell back to $1.1580 from a high of almost $1.1650 earlier. The US dollar was showing strength across the board following yesterday’s brief pause. There were tentative signs that appetite for risk was improving with safe haven Japanese yen falling for the third consecutive day against the dollar. It remains to be seen however, whether there will be any follow-through now, as sentiment remains cagey following last week’s drop in US equity indices.

One particular risk-sensitive currency pair to watch for a potential reversal is the GBP/JPY. Not only are we seeing some positive headlines regarding Brexit, but UK data is also showing signs of improving again of late. With the Bank of England meeting coming up on Thursday, the pound could find further strength in the event the BoE hints at the prospects of further rate hikes in the months ahead. What’s more, the equity market sell-off looks to be a little overdone, especially in Europe. In Japan, the Nikkei closed sharply higher overnight, potentially pointing to calmer conditions there. So, if equity indices do manage to turn around here then the GBP/JPY could stand to benefit. Conversely, if risk aversion were to rise further then the yen could remain supported and this may keep the pressure on the GBP/JPY.

In any event, we are going to let the market tell us which direction it is headed. If the GBP/JPY were to break through key resistance in the 145.50 to 146.50 range then this would be the bullish development we are looking for. For if this happens, price will have not only broken through horizontal resistance but through a bearish trend too and made a higher high on a closing basis. The GBP/JPY has already formed a potential higher low around 142.60. But if the selling pressure prevails and price falls below that low at 142.60, then this would invalidate any short-term bullish bias that may have been formed following recent price action.

Source: eSignal and

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 or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account