FTSE 100, USD/JPY Forecast: Two trades to watch

FTSE 100 steadies at record highs as GDP slows

The FTSE is edging modestly lower from its record high reached yesterday as investors digest the latest GDP data, which shows the UK economy ground to a halt in the third quarter.

UK GDP rose just 0.1% in the third quarter, below forecasts of 0.2% and down from 0.3% in the second quarter. On a monthly basis, the economy contracted 0.1% defying expectations of 0%.

The economy was hit by a cyberattack at Jaguar Land Rover and by caution ahead of the government’s Budget on November 26.

The data shows a marked slowdown from the start of the year, when the UK outperformed other G7 countries. However, recent sentiment surveys suggest that consumers and companies are delaying spending decisions amid concerns about large tax rises in this month's budget.

The UK economy is struggling to gain traction, and these headwinds could keep growth weak across the final quarter of the year. The data support the case for the Bank of England to cut rates sooner rather than later, with the prospects of a December rate cut increasing.

While GBP/USD initially fell following the data, it's since picked up on USD weakness. However, GBP/USD is still 3% lower over the past three months, offering a more favorable exchange rate to the multinationals on the FTSE.

On the earnings front, Burberry is rising after Q2 comparable sales rose and amid signs that its China business is recovering.

Persimmon posted a 15% increase in forward sales, helped by more sales outlets in a challenging market.

FTSE 100 forecast-technical analysis

The FTSE has broken out of its rising channel since mid-April. Her price has risen to 9930, a record high. The RSI is above 70, so a period of consolidation could be on the cards before further gains.

Buyers will look to extend gains towards 10,000, the key psychological level.

Support can be seen at 9790 —the October high —and below; here, 9700 comes into focus. A break below 9580 creates a lower low.

 

USD/JPY hits an 8-month high, intervention fears rise

USD/JPY rises to an 8-month high while EUR/JPY rises to a record high on yen weakness. The yen fell sharply against its major peers following an admission by Japanese Prime Minister Sanae Takaichi that she prefers interest rates to remain low and that she has asked the Bank of Japan for closer coordination. These comments fueled worries that the Japanese government would seek to influence the central bank into delaying rate hikes. This is weighed on the yen, creating a tailwind for the pair.

However, intervention worries are limiting further gains for now. Japanese Finance Minister Katayama gave a new verbal warning on yen weakness as it approached the 155 level. Concerns over a possible intervention could further weaken the currency for now. However, as we have seen on previous occasions, there is only so much intervention the government can do, given the huge costs involved.

The US dollar is falling against its major peers today as traders turn cautious over the prospect of weak data following the reopening of the US government.

The House passed a spending bill, which President Trump signed into law late yesterday, allowing the resumption of official data, although the timing of releases remains unclear.

As a result, there could be as many as three job reports and two inflation prints ahead of the December Federal Reserve meeting. Any sign of a rapidly deteriorating labour market could prompt the Fed to cut again in December.

USD/JPY forecast- technical analysis

USD/JPY trades within a rising channel, forming a series of higher highs and higher lows to a peak of 155, an 8-month high, and the upper band of the rising channel.

Buyers will look to extend gains above 155 towards resistance at 156.75, the January 22 high, and above here, 158.90 comes into play.

Support is seen at 153.20, the October high, and the November low. Below here, the 151.00 support zone comes into focus, along with the March and August highs and the channel midpoint.

 

By Fiona Cincotta