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Short-Term Trend Likely to Lean Downward
Forex
Summary:
GBPJPY is poised to face downward pressure amid divergent monetary policy expectations. Heightened expectations of an interest rate cut by the Bank of England (BoE) contrast with rising prospects for a rate hike by the Bank of Japan (BoJ), potentially weakening the pound against the yen.
Sell
CLOSEDGBPJPY
End Time
187.704
Entry Price
181.100
TP
190.200
SL
192.677 -0.539 -0.28%
2496
Points
Loss
181.100
TP
190.207
CLOSING
187.704
Entry Price
190.200
SL
Fundamentals
United Kingdom:
The UK's March Consumer Price Index (CPI) registered a YoY increase of 2.6%, marking the second consecutive month of deceleration and falling short of the market consensus of 2.7%. The core CPI, which excludes volatile food and energy prices, rose 3.4% YoY, in line with expectations but still indicative of elevated underlying inflationary pressures. This data has further solidified market expectations for a BoE rate cut in 2024, with interest rate futures now pricing in a 68% probability of a 25 basis point reduction in May.
Wage growth in the UK also showed signs of moderation. Average weekly earnings, excluding bonuses, increased by 5.6% YoY in February, below the anticipated 5.7%. Retail sales data for March revealed a YoY increase of only 0.9%, highlighting a lack of momentum in domestic consumer demand and exacerbating downward pressure on the pound.
Japan:
Japan's core CPI, which excludes fresh food prices, climbed to 3.2% YoY in March, surpassing the Bank of Japan's 2% inflation target for the third consecutive year. The persistent overshooting of the inflation target has intensified market speculation that the BoJ may tighten monetary policy sooner rather than later.
Additionally, geopolitical tensions and the escalation of the US-China trade dispute have heightened global supply chain concerns, prompting a surge in safe-haven flows into the yen. As a traditional safe-haven currency, the yen's appeal has significantly strengthened amid deteriorating risk sentiment, further bolstering its value.
Overall, the increasing likelihood of a BoE rate cut in May is expected to weigh on the pound, while the rising probability of a BoJ rate hike is anticipated to provide a tailwind for the yen, potentially widening the spread between the two currencies.
Technical Analysis
From a technical perspective, the GBPJPY exchange rate remains entrenched within a well-defined descending channel on the daily chart, with the prevailing trend firmly skewed to the downside.
After initially finding support at the lower boundary of the channel, the price staged a rebound but was subsequently capped by resistance at the psychological level of 190.00. The sustained inability to breach this resistance level has led to a gradual erosion of bullish momentum, suggesting that the market may be poised for another leg lower.
On the downside, the initial target for further depreciation is likely to be the previous low at 184.37. Should this level be convincingly breached, the downside trajectory could extend further, with the potential for the exchange rate to probe towards the 180.00 mark.
Trading Recommendations
Trading Direction: Sell
Entry Price: 187.80
Target Price: 181.10
Stop Loss: 190.20
Valid Until: May 06, 2025, 23:00:00
Support: 184.37/180.00
Resistance: 188.76/190.00
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