Market Analysis

GBPJPY: Pressured as a new budget is revealed

Yesterday at the annual budget speech, UK Chancellor Hammond signaled that the era of austerity was finally coming to an end and that he expects the deal dividend from Brexit will allow further funding for 2019 spending review.

UK Chancellor Hammond assumed that Value-Added Tax (VAT) threshold for businesses will remain unchanged for an additional two years but will introduce a UK digital services tax, which will raise GBP 400mln/year when adopted in April 2020. He also will increase the threshold for income tax to GBP 50,000, tax-free allowance for income will rise to GBP 12,500 in April 2020.

The latest report on the United Kingdom consumer price index (CPI) revealed a drop to 2.4% year-on-year in September, comparing to the 2.7% registered in August and missing analysts’ estimates of 2.6%. It is the lowest reading in three months, driven by a slowdown in the cost of food, transport, recreation, and culture plus a drop in clothing prices. However, remains above the Bank of England (BoE) target of 2%.

Japanese National consumer price index (CPI) fell to 1.2% year-on-year in September, comparing to the 1.3% registered in the previous month, led by lower prices of food. Nonetheless, it is the second-highest figure in the last seven months. This drop of 0.1% in the Japanese CPI may be seen as having a negative impact on the Yen. The CPI remains well below the BOJ’s 2.0% target despite Japan’s steady economic recovery, forcing the central bank to maintain a massive stimulus despite its rising costs.

Since the beginning of 2018 until last Monday close, the GBPJPY remains negative with a loss of almost 5.5% and since the start of October, the currency pair dropped nearly 3.0%. Nonetheless, the weekly outlook began flat with a minor gain of 0.16% and on the daily basis closed relative green with 0.16% gain, furthermore, it is in a bearish phase since late-October.

On the last Monday session, the currency pair tried to rise but found enough selling pressure near the 144.400 to erase most of its initial gains and closed near the low of the day, however, managed to close within Friday range, which suggests being slightly on the bearish side of neutral.

The stochastic is showing an overbought market and is beginning to display a shy bullish momentum.

After making a new year-to-date low at 139.888 in August, the currency pair began an upward rally until the end of September where it commenced developing a rounded top pattern. In October, the GBPJPY design the second leg of the rounded top and is now testing the neckline. The rounded top is reversal pattern designed to catch the end of a trend and signal a potential reversal point on a price chart. The rounded top pattern appears as an inverted ‘U’ shape signaling the end of an uptrend and the possible start of a downtrend. This means that the rounded top can indicate an opportunity to go short.


Watch out this week: 

On Wednesday at 23:00GMT (18:00 PM ET) the Bank of Japan (BoJ) will release the interest rate decision and its monetary policy statement with market analysts suggesting that the interest rate will remain unchanged at -0.10% which investors should look for clues on future changes in monetary policy.

On Thursday at 12:00GMT (7:00 AM ET) the Bank of England (BoE) should announce that the interest rate will remain unchanged at 0.75% according to market analysts. The central bank will also release the Minutes of the meeting, which give a full account of the policy discussion, including differences of view.


GBPJPY: Pressured as a new budget is revealed

GBP/JPY Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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