GBP/JPY to 152?

GBP/JPY to 152?

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GBP/JPY to 152?

Sterling turned out to be the best performing currency this past week thanks to a beginning of the week and end of week rally. There was actually very little in the way of U.K. data except for Friday when the currency was propelled higher by stronger industrial production and trade balance. There was also no progress on Brexit talks though Prime Minister May has grown increasingly conciliatory with talks that she could be willing to pay the EU the entire Brexit bill and possibly even more to secure a better trade deal. The EU on the other hand hasn’t been very cooperative and so Brexit developments still need to be watched carefully going forward. Next week will be a busy one for sterling with labor, inflation and retail sales reports scheduled for release along with speeches by a number of Bank of England officials including Governor Carney. If the data is good, it will propel the currency higher, taking GBP/JPY up with it. The U.S. dollar will be affected by 3 distinct factors in the coming week politics, economics and monetary policy. There’s no doubt that politics will be the primary driver but with 6 Federal Reserve Presidents speaking, the prospect of rate hikes could also affect how the greenback trades. Retail sales and consumer prices are also scheduled for release and investors will be eager to see if last month’s sharp increase in jobs translated into more spending. While we believe that rate hike talk could lift the greenback, lower gas prices and zero wage growth in October along with the drop in consumer sentiment means spending may be restrained. So on balance, we expect a mildly positive boost from Fed speak and U.S. data. Politics on the other hand is always difficult to predict.

Technically, GBP/JPY has done a great job of holding above the 50-day SMA near 148.70. If it breaks above 150 (and it looks like it will), the next stop could be 152. However if it sinks below 148.50, we could see losses extend as far as 147.00

EUR/NZD – Headed Back to 1.52

EUR/NZD – Headed Back to 1.52

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EUR/NZD – Headed Back to 1.52

Euro ended the day unchanged against the greenback. Since breaking below the 200-day SMA last week the currency pair remains under pressure and vulnerable for another test and possible break of 1.10. The ECB continues to buy bonds with their purchases picking up steam over the past week. The reports of Italy’s banking troubles continue to grow and while it may not be the biggest story in the financial market right now, it could become the headline in the coming months. There’s not much in the way of Eurozone data this week and no major speeches from policymakers is scheduled so the euro should remain under pressure. While the New Zealand dollar also sold off, there was no catalyst for the pullback outside of profit taking. Data from New Zealand was actually strong with credit card spending rising 1.2% in the month of June. The country offers a generous 2% yield in a negative interest rate environment, the housing market is booming faster than the central bank would like and last week, the RBNZ warned that further rate cuts could lead to financial instability. For all of these reasons and more, we like selling EUR/NZD.

Technically today’s rally in EUR/NZD is a strong one but as long as the pair remains below the 1st standard deviation Bollinger Band at 1.5415, the downtrend remains intact. Considering that the low today was 1.5092, a reversal of today’s move could easily take EURNZD back below 1.5200.

GBP/USD – 1.52 Inflection Point

GBP/USD – 1.52 Inflection Point

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GBP/USD – 1.52 Inflection Point

The British pound is in play tomorrow with the Bank of England scheduled to make a monetary policy announcement. While no changes are expected, the minutes are now released alongside the statement and its tone could trigger a big reaction. Last month, sterling fell sharply on the back of surprisingly dovish comments. This month, while the decline in oil prices gives policymakers more to worry about, sterling has also fallen in value versus the euro since the last meeting, which helps to offset some of the pressure on inflation. As shown in the table below, the economy has seen just as much improvement as deterioration since the last meeting but as we have learned in the latter part of this year, inflation is a far bigger concern for the BoE than growth.

Technically GBP/USD is at an important inflection point. If the currency pair rises above 1.52, the downtrend would broken as 1.52 was previously an important support level. This gives scope for a stronger rally to 1.5350. However if it fails at 1.52, then another run to 1.50 is likely.