Two trades to watch: EUR/GBP, USD/JPY

EUR/GBP falls despite dismal UK data

EUR/GBP dropped 0.8% yesterday after BoE Governor Andrew Bailey spooked the markets just hours after shoring them up.

Andrew Bailey warned pensions that they had 3 days to shore up their positions ahead of Friday’s hard deadline when support would be withdrawn. His comments

However, today’s reports suggest that the BoE is more willing to be flexible regarding its position, saying privately that it could prolong support.

UK GDP unexpectedly contracted -0.3% MoM in August after rising 0.2% in July. This drop in GDP means that the UK economy is likely to contract in Q3 making a recession in Q4 almost unavoidable.

Looking ahead, any further commentary from the BoE will be watched closely.

Eurozone industrial production is also due to show a small rebound of 1.2% YoY after falling -2.4% in July.

Where next for EUR/GBP?

EUR/GBP rebounded off the 20 sma yesterday and pushed back up towards 0.8870. The receding bearish bias on the MACD supports further upside.

Buyers will look for a move over 0.8870 push towards 0.90 round number and high September 27.

Should the sellers successfully defend the 0.8870 the price could look to retest support at 0.88 the 20 sma ahead of 0.8720 the October 10 low. A break below here creates a lower low.

USD/JPY rises with US PPI & FOMC minutes due

USD/JPY is rising for a sixth straight session, pushing above 146.00 to fresh 24-year highs and above, where the Japanese Ministry of Finance intervened on September 22nd to shore up the yen.

While the pair dropped following the intervention, it has since drifted higher amid ongoing Fed-BoE divergence.

The USD was boosted overnight by hawkish Fed comments. Fed President Mester said the Fed still had a lot of work to do to bring inflation down and that a more restrictive policy was needed.

Today attention turns to US PPI inflation which is expected to ease very slightly to 8.4% YoY, down from 8.6%.

The minutes from the September FOMC are also due to be released. The Fed hiked rates by 75 basis points at the meeting. The minutes are expected to support the Fed’s hawkish stance.

Where next for USD/JPY?

USD/JPY has risen to its highest level since August 1998 in the Asian session. It sees sustained strength over 145.00, which has helped it push over 146.00.

However, the RSI divergence suggests that the run higher could run out of steam, and buyers should be cautious. Waiting for some consolidation or a pullback could be prudent.

A fall below 146.00 is likely to find solid support at 145.00, which is broken, and could open the door to 144 round figure.

On the flipside, a move over 146.40 daily high, could open the door to 147.00 round number and 147.70 the 1998 swing high.

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. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, 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 StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.