5 Points on GBP/JPY Forex Forecast Ahead of BoE

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5 Points on GBP/JPY Forex Forecast Ahead of BoE

Mr.British Pound (GBP) acted cray-cray on the forex dance floor on Tuesday, especially against the US dollar. Surprisingly positive fundamentals were announced, but the Forex traders decided to sell him off. It could be the anticipation of the upcoming hot economic events of out Bank of England (BoE) this Thursday. But would any of these market moving events change the fate of Mr. British Pound in a long run? Let’s take a look at his dance moves against Ms. Japanese Yen (JPY.)

1- GBP Moved Down on Positive UK Manufacturing PMI

The big surprise of Monday was UK manufacturing PMI. Factory output surged to a 16 month high as exports picked up significantly, beating expectations by a mile. The experts were forecasting a reading of 52, which would have been an improvement on September, but the number came out at 55.5, a huge number that you’d have expected sterling to use to its advantage, but it didn’t. The pound was still on good form following a late Friday rally, but couldn’t add to its gains on the good news. Whether there is a feeling that it has rallied far enough for the time being, or that the number could just be a flash in the pan is anyone’s guess.

2- BoE Monetary Policy & Inflation Report Coming Up

Monetary policy decisions in general bring the hard beat to the forex dance floor for any pair. Policy tightening, whether in the form of an actual rate hike or creating liquidity typically leads to up-moves in a currency, while policy easing or expectations of such could spur down-moves.

With both Bank of England’s monetary policy statement and Inflation report scheduled for this Thursday at 1 PM GMT, a cross over between the London session and the New York session, we could expect a ton of sick dance moves from Mr. British Pound against other peers. The quarterly Inflation Report is a huge deal because it contains the central bank’s projections for growth and inflation, from which they base their potential policy adjustments. Downgrades on their estimates suggest that the BOE might stick to their accommodative stance for much longer and possibly push back rate hike expectations. On the other hand, upgrades could revive calls for an interest rate hike early next year, which could push Mr. British Pound to the North.

3-  Low Chance of Economic Boost from Bank of Japan (BoJ)

As I covered in my previous update on JPY, Japan’s central bank (BoJ) is not known for making hasty decisions. On Friday right before Halloween, BoJ governor Kuroda said the stimulus measures already in place are enough for now despite admitting that Japan’s economy seems gloomy. He has put off his inflation target twice this year, and so has discouraged some analysts from thinking he’ll ever boost policy again.

With that, we could assume that Ms. Japanese Yen (JPY) could continue the path of ranging against her forex dancing partners, including Mr. British Pound. This would mean that Mr. British Pound is literally the lead in the GBP/JPY dance.

4- Long Term Bullish Signal from GBP/JPY Monthly Chart

As I covered in my previous GBP/JPY update, there are a number of  bullish signals for the pair. Today lets get a bit more specific, and let you be the judge. Here is the story of the pair, since July 2007:

Mr. British Pound saw massive drops against Ms. Japanese Yen from 7/2007 through 12/2008, during the global market crash period. Keep in mind that this was exactly when I started trading forex, making them pips on the market crash!

Then, the pair ranged for about 3 years between 140 and 120. In July 2012,a brand new uptrend was born that has been going on till today. But every uptrend needs a correction, and the pullbacks we saw in August and September 2015 could just be the temporary pullback the pair needed to take a rest. The pair has broken above the  Ichimoku cloud but was unable to even reach the 23% Fibonacci level.

The resistance sits on 193, and a break above it could signal further up-moves towards the 2008 levels of 206.

5- GBP/JPY Seems to Be Trapped in a Short Term Range

Turning to the daily chart, the after completing a Double Top chart pattern, the pair now seems to be dancing between the pivot points of 187 and 182. The consolidation almost confirmed when pair entered the thick Ichimoku cloud this week. If nothing major comes out of this week’s BoE we could expect the range to continue till the year-end. Because with the holidays coming up, even the currency pairs may want to take a break from jumping up and down, eh?

Forex Trading Idea

Short Term: If you are feeling adventurous want to ride a possible volatile trade on Thursday, watch out for the risk event. The GBP/JPY normally consolidates right before such announcements,and shows immediate reaction to the outcome: upward moves on positive news, and downward moves on negative news. make sure you have your stop loss order in place so that your account doesn’t get carried away by unexpected market reactions. 

Long term: If you’d rather play it safe, wait until the dust settles on the forex dance floor. A break above 187 could indicate that the pullback is over and the pair could move back up towards 193. A break below 182 could alter our bullish outlook into bearish, with 176 as first alternative target.

 In any case, use the following support, resistance and pivot levels for calculating your profit taking target, your leverage and exit strategy.

Support Levels Turning Point Resistance Levels
176 182 193
165 187 195

Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.