GBP JPY Forecast | UK + Japan Economy | Forex Trading Strategy
Gear up Invest Divas/ Divos as the GBP/JPY pair could be up for passionate moves on the forex dance floor . GBP, also known as Mr. British Pound is expected to put on most of the moves because of the upcoming and developing events in the UK economy. However, in order to conduct a complete Invest Diva's Diamond Analysis, I will go over the Japanese economy, technical analysis and market sentiment as well, to show you an optimized forex trading strategy. Are you ready for your GBP JPY forecast?
UK economy fell into deflation in September
So much for a British interest rate hike in 2015! Sadly for GBP bulls, the British economy has fallen into deflation.
Prices for goods and services bought by households in the U.K. fell 0.1 percent in September from the same period last year, as clothing prices rose less than usual and motor fuel prices fell. Headline consumer price inflation (CPI) came in below analysts expectations and well below the Bank of England's (BoE) target. It gives the central bank little added reason to raise interest rates in the near future.
In the most recent Bank of England (BoE) meeting, Governor Mark Carney did bring in a cautious tone around global growth concerns, but continued to say that the view on higher rates should ‘come into sharper focus around the end of the year.’ But with the bombardment of the once "high-flying" economies such as UK and the US, we must admit it appears that no economy is immune any longer.
Wages, business optimism & consumer spending improved
Probably the most pleasing news for UK economy has been the rise in wages, with private-sector pay growth running at 3.4. The rise was partly just the result of cheap oil pushing down inflation, but also because of an increase in people changing jobs and moving into better positions.
However, the number of people earning less than the living wage has increased to 19% of working people in 2014, from 13% in 2010, the Office for National Statistics (ONS) has said. Despite overall wage rises, this means that in-work poverty has increased.
The EY ITEM Club says that over the past year consumers have enjoyed a ‘sugar rush’ as falling commodity prices pushed inflation down to zero. With the inflation back to negative, we should probably expect more of this!
UK jobs report coming up
Another hot economic event is coming up its way. Employment reports tend to be a huge deal since these serve as leading indicators for economic growth. After all, a stable jobs market and rising wages tend to spur financial confidence and stronger consumer spending, encouraging businesses to step up production and hiring.
For the month of September, the claimant count change is expected to show a 2.3K drop in joblessness, possibly enough to keep the unemployment rate steady at 5.5%. Stronger than expected jobs figures tend to give Mr. British pound a strong boost against its forex counterparts while weak readings usually trigger down moves.
Japan Economy Aiming for Stability
In my meeting with a number of Japanese governors and hearing a speech from Japan's Prime Minister, Shizon Abe (the inventor of Abenomics) I reconfirmed that Bank of Japan tries to do whatever it takes to prevent volatility in the currency market.
Looking at the Bank of Japan (BoJ) minutes from their meeting in September, policymakers last month confirmed the importance of continuing to closely monitor effects from slowing growth in emerging economies, including China, on the global economy.
On the Japanese economy, Policy Board members agreed that Japan’s exports and production “had recently been more or less flat” due chiefly to effects from the slowdown in emerging economies, according to the minutes.
But board members shared the recognition that the Japanese economy was “likely to continue recovering moderately” thanks mainly to a positive attitude toward investment and resilient private consumption.
The Japanese government is sure pushing for foreigner companies to invest in Japan, in hopes of bringing the economy back to its glorious days. But for now, we probably shouldn't be expecting anything out of the ordinary from Japan economy.
British Pound (GBP) - Japanese Yen (JPY) Outlook
Mr. British Pound (aka Cable) dropped his pants against most of his major forex dancing partners (oh my!) on the deflation report on Tuesday. Against the Euro it reached a bullish target of 0.7440. However, against Ms. USA (US dollar) it merely fulfilled a range trade as both GBP and USD remain in (almost) the same level of strength produced by the same level of confusion of investors who can't decide whether the UK and US economy are improving or not!
Therefore I decided to cover the GBP forex dance moves against the Japanese Yen (JPY) who rarely makes any moves of its own and is mostly led by other currencies. For the time being, all eyes will be on this week's data out of the UK economy to confirm a concrete direction for the GBP.
On the daily chart the GBP/JPY pair has been on a very choppy ride and currently trapped in a triangle chart pattern below the Ichimoku cloud and a key resistance level at 185.20.
However taking a look at the monthly chart, we realize that the pair has been in an uptrend since 2012 with 194.50 set as a bullish target. Consulting our dear friend, Mr. Fibonacci, we could argue that the recent drops may be a mere retracement towards the key Fibonacci retracement levels, and there still is a possibility of the prices to move back up after the pullback is completed. The first supports falls on the 23% Fibonacci level at 177.
According to the sentiment index from one of the largest brokers in the US, the bullish versus bearish traders on the GBP/JPY pair are 50/50. It seems many traders are confused! This backs up our technical analysis on shorter time frames such as the daily chart, which showed a consolidation.
It is good to know know that GBP pairs typically consolidates in a tight box during the hours leading up to the release, followed by a jump or slump after the release depending on the outcome.
GBP JPY Forecast | Forex Trading Strategy
For now, I think you'd agree that there is no clear short term trading strategies for the GBP versus any major pairs, let alone the JPY.
However, tomorrow's results could give us some directions. For a long term trading strategy, wait for the market chaos to calm down so that you can measure the market sentiment with more clarity.
For a short term trading strategy, make sure you have your stop loss order in place so that your account doesn't get carried away by unexpected market reactions. In any case, use the following support, resistance and pivot levels for calculating your profit taking target, your leverage and exit strategy.
Supports, Pivots and Resistance Levels
|Support Levels||Turning Point||Resistance Levels|
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.