Friday’s trade saw GBP/JPY within the range of 186.77-190.81. The pair closed at 190.52, surging 1.84% on a daily basis, or the most considerable daily gain since October 31st 2014, when it went up 2.83%. The daily high has also been the highest level since July 7th, when the cross registered a high of 191.57. GBP/JPY lost 0.40% during the week ended on July 12th, which marked a second consecutive weekly drop.
At 13:33 GMT today GBP/JPY was up 0.65% for the day to trade at 191.77. The pair broke the daily R1 level and touched a daily high at 192.34 at 9:35 GMT. It has been the highest level since July 3rd, when a daily high of 192.49 was registered.
Fundamentals
Japan
Industrial Production
Japanese industrial output shrank 2.1% in May on a monthly basis, the Ministry of Economy, Trade and Industry reported at 4:30 GMT on Monday. The final estimate came in line with the median forecast by experts. The monthly rate of decrease has been the most notable since February, when production slumped at a final rate of 3.1%. The preliminary report, released on June 28th, showed a 2.2% decline in Japanese output in May.
In annual terms, Japans industrial output contracted 3.9% in May, following another 4.0% drop in the preceding month.
Agreement on Greek debt
Demand for safe haven currencies, such as the yen, was trimmed on Monday, after an all-night debate Euro leaders came to an agreement over an 86-billion-euro three-year bailout for Greece and to keep the country within the common currency zone.
“Euro summit has unanimously reached agreement. All ready to go for ESM programme for Greece with serious reforms and financial support”, the European Council President Donald Tusk tweeted.
“Its positive that theyve reached an agreement and it should be positive for risk in general,” said Vasileios Gkionakis, the Global Head of FX Strategy at UniCredit, cited by Reuters. “We are seeing a dip in the euro at the moment. But that is because of the moves at the end of last week; generally this should bode well.”
The Greek government would need to introduce legislation in regard to government spending on pensions, sales tax increases and a debt repayment fund through Wednesday. With this legislation passed, the country will then receive bridging loans in order to repay EUR 3.5 billion to the European Central Bank until July 20th.
Bond Yield Spread
The yield on Japanese 2-year government bonds went as high as 0.035% on July 10th, or the highest level since April 2nd (0.036%), after which it slid to 0.010% at the close to gain 0.001 percentage point on a daily basis.
The yield on UK 2-year government bonds climbed as high as 0.604% on July 10th, or the highest level since July 2nd (0.662%), after which it fell to 0.573% at the close to gain 3 basis points (0.03 percentage point) for the day.
The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.563% on July 10th from 0.534% during the prior day. The July 10th difference has been the most considerable one since July 2nd, when the yield spread was 0.594%.
Meanwhile, the yield on Japans 10-year government bonds soared as high as 0.465% on July 10th, or the highest level since July 8th (0.465%), after which it slid to 0.450% at the close to appreciate 3.3 basis points (0.033 percentage point) compared to July 9th. It has been the first gain in the past five days.
The yield on UK 10-year government bonds climbed as high as 2.097% on July 10th, or the highest level since July 2nd (2.178%), after which it slipped to 2.074% at the close to add 11.4 basis points (0.114 percentage point) on a daily basis, while marking a third consecutive day of gains.
The spread between 10-year UK and 10-year Japanese bond yields widened to 1.624% on July 10th from 1.543% during the prior day. The July 10th yield difference has been the largest one since July 1st, when the spread was 1.648%.
Long-term Technical Outlook
The bull trend, which began in November 2012 is still valid. The perfect order of the 25-day (blue on the weekly chart), the 50-day (red) and the 200-day (white) Exponential Moving Averages is intact, as GBP/JPY found support on several occasions at the 25-day and the 50-day EMA. In addition, the Relative Strength Index (RSI) is conveniently above its 50.00 level and still has some room to run before indicating overbought conditions. The ADX holds above its 20.00 level, while the +DI (green) and the -DI (red) have crossed, but no clear signal has been provided yet. In case they tend to move in a parallel manner, this may be indicative of a trading range forming. In case the +DI moves above the -DI, while the two tend to distance from one another, this may be indicative of trend continuation.
In case we witness a break and a close above the June 18th 2015 high of 195.88 (the highest level since September 25th 2008), we expect continuation of the bull trend in the weeks to come.
Pivot Points
According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 189.37. In case GBP/JPY manages to breach the first resistance level at 191.96, it will probably continue up to test 193.41. In case the second key resistance is broken, the pair will probably attempt to advance to 196.00.
If GBP/JPY manages to breach the first key support at 187.92, it will probably continue to slide and test 185.33. With this second key support broken, the movement to the downside will probably continue to 183.88.
The mid-Pivot levels for today are as follows: M1 – 184.61, M2 – 186.63, M3 – 188.65, M4 – 190.67, M5 – 192.69, M6 – 194.71.
In weekly terms, the central pivot point is at 189.06. The three key resistance levels are as follows: R1 – 193.12, R2 – 195.72, R3 – 199.78. The three key support levels are: S1 – 186.46, S2 – 182.40, S3 – 179.80.
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