Forex Market: GBP/JPY daily trading forecast

Yesterday’s trade saw GBP/JPY within the range of 189.78-192.34. The pair closed at 191.33, surging 0.68% on a daily basis. The daily high has also been the highest level since July 3rd, when the cross registered a high of 192.49.

At 7:56 GMT today GBP/JPY was down 0.12% for the day to trade at 190.91. The pair touched a daily low at 190.60 at 6:00 GMT.

Fundamentals

United Kingdom

Consumer Inflation

The annual rate of inflation in the United Kingdom probably stood at 0% in June, according to the median estimate by experts, down from 0.1% in May. If so, this would be the 18th consecutive month, when annualized consumer prices remained below the 2-percent objective, set by the Bank of England. In April the annual rate of inflation fell to the lowest level ever recorded, -0.1%.

The CPI is the main measure of inflation in the UK for macroeconomic purposes and forms the basis of the inflation target set by the government. Every month about 120 000 samples are made, examining the change in prices of about 650 products. They represent the “market basket” of goods and services, on which the index is based.

Key categories in the consumer price index are Transport (accounting for 16.2% of the total weight) and Housing, Water, Electricity, Gas and Other fuels with a 14.4% share. Recreation and Culture accounts for 13.4%, Restaurants and Hotels – 11.4% and Food and Non-alcoholic Beverages – 11.2%. The CPI also encompasses Miscellaneous Goods and Services (9.6%), Clothing and Footwear (6.5%), Furniture, Household Equipment and Maintenance (6.1%). Alcoholic Beverages and Tobacco, Health, Communication and Education comprise the remaining 11.2% of the total weight.

The annualized core consumer price inflation probably slipped to 0.8% in June from 0.9% during the previous month. If so, this would mark the 12th consecutive month, during which annual core inflation stood below the 2% target set by the Bank of England. The core CPI measures the change in prices of goods and services purchased by consumers, without taking into account volatile components such as food, energy products, alcohol and tobacco.

In case the annual CPI slowed down more than expected, thus, further distancing from the central bank’s inflation objective, this would certainly trim the appeal of the sterling. The Office for National Statistics (ONS) will publish the official CPI report at 8:30 GMT.

Bond Yield Spread

The yield on Japanese 2-year government bonds went as high as 0.028% on July 13th, after which it slid to 0.010% at the close to remain unchanged on a daily basis.

The yield on UK 2-year government bonds climbed as high as 0.644% on July 13th, or the highest level since July 2nd (0.662%), after which it fell to 0.583% at the close to lose 0.008 percentage point for the day. It marked the first drop in four days.

The spread between 2-year UK and 2-year Japanese bond yields, which reflects the flow of funds in a short term, expanded to 0.573% on July 13th from 0.563% on July 10th. The July 13th 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 0.459% on July 13th, after which it slid to 0.436% at the close to lose 1.4 basis points (0.014 percentage point) compared with July 10th.

The yield on UK 10-year government bonds climbed as high as 2.168% on July 13th, or the highest level since July 2nd (2.178%), after which it slipped to 2.103% at the close to add 2.9 basis points (0.029 percentage point) on a daily basis, while marking a fourth consecutive day of gains.

The spread between 10-year UK and 10-year Japanese bond yields widened to 1.667% on July 13th from 1.624% on July 10th. The July 13th yield difference has been the largest one since June 26th, when the spread was 1.715%.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 191.15. In case GBP/JPY manages to breach the first resistance level at 192.52, it will probably continue up to test 193.71. In case the second key resistance is broken, the pair will probably attempt to advance to 195.08.

If GBP/JPY manages to breach the first key support at 189.96, it will probably continue to slide and test 188.59. With this second key support broken, the movement to the downside will probably continue to 187.40.

The mid-Pivot levels for today are as follows: M1 – 188.00, M2 – 189.28, M3 – 190.56, M4 – 191.84, M5 – 193.12, M6 – 194.40.

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.