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GBP/JPY Headed for 168?
Between Bank of England Governor Carney’s dovishness and the Federal Reserve’s less hawkish monetary policy statement, GBP/JPY should be trading lower. Every change that the Federal Reserve made suggests that they are more worried about inflation and less inclined to raise interest rates in March. There are still 7 weeks and 2 non-farm payroll reports until the March meeting and a lot can change from now until then but judging from today’s FOMC statement, if oil prices and global equities fail to recover before the March meeting, U.S. policymakers will pass on raising rates. Although USD/JPY was unfazed by FOMC, rallies should be sold as we are looking for a move back to 118 and a decline in USD/JPY will be negative for GBP/JPY. At the same time, the second worst performing currency today was the British pound, which fell sharply versus the U.S. dollar. Investors are worried that if the Fed delays tightening and ends up only raising interest rates by another 25bp this year, then the Bank of England could forgo raising rates at all in 2016. U.K. GDP numbers are scheduled for release tomorrow and with spending falling 2 out of the last 3 months of the year, the risk is to the downside. Slower GDP growth could drive GBP/JPY below 168.
Technically GBP/JPY tested but failed to break above 170 four out of the last four trading days. Given recent fundamental developments we believe this resistance which is actually at 170.50 will hold. 168.25, the 38.2% Fibonacci retracement of the 2007 to 2011 decline will serve as interim support with the next significant support level being 166.00, the 38.2% Fib retracement of the 2011 to 2015 rise