Forex Market: GBP/JPY daily trading forecast

Yesterday’s trade saw GBP/JPY within the range of 192.43-193.91. The pair closed at 192.75, down 0.35% on a daily basis, while marking a third straight trading day of losses. The daily low has also been the lowest level since July 14th, when the cross registered a low of 190.53.

At 8:03 GMT today GBP/JPY was up 0.27% for the day to trade at 193.25. The pair touched a daily high at 193.27 at 7:57 GMT.

Fundamentals

United Kingdom

Bank of England Minutes

Released two weeks after the policy meeting itself, the minutes provide a full account of the policy discussion, including differences of view. The document also reflects the votes of the individual members of the Monetary Policy Committee (MPC). On July 7th all 9 members of the Committee probably voted in favor of keeping the benchmark interest rate unchanged. In addition, all members of the Committee probably voted to keep the stock of purchased assets financed by the issuance of central bank reserves unchanged at GBP 375 billion. In case the central bank demonstrates a hawkish view in regard to inflation pressure and overall economic activity in the UK, this heightens the probability of an interest rate hike, which has a positive effect on the pound. A dovish view, on the other hand, will have the opposite effect.

During a speech at the Lincoln Cathedral on July 16th, Bank of England Governor, Mark Carney, indicated that the central bank’s decision on the rate hike will probably become a fact by the end of 2015, while monetary policy tightening is expected to be in a gradual manner.

He is also expected to take a statement at 17:00 GMT today.

Japan

Balance of Trade

Japans merchandise trade balance probably produced a surplus at the amount of JPY 5.40 billion during June, according to the median forecast by experts, following a deficit of JPY 216.00 billion, registered in May. The latter has been the most considerable deficit since February, when a figure of JPY 424.6 billion was reported. Total exports rose at an annualized rate of 2.4% to JPY 5.740 trillion in May, which has been the smallest gain in nine months despite the weaker yen. Shipments to Asia, which account for over half of Japans overall exports, expanded 3.3%. Within this category, the largest increases in exports were reported for Taiwan (9.5%), Hong Kong (8.0%), the United States (7.4%), China (1.1%). Total imports fell at an annualized rate of 8.7% to reach JPY 5.956 trillion in May, or the fifth consecutive period of decline. Inward shipments of mineral fuels, which account for almost 33% of the nations total imports, shrank 33.1% year-on-year in May. In addition, import of petroleum went down 31.7% year-on-year.

During the period 1970-2010 Japan has had regular annual trade surpluses. Since 2011, on the other hand, the country has been recording trade deficits, because yen depreciation led to higher costs of imports, while increased purchases of fossil fuels and gas were aimed to neutralize the loss of nuclear power after the devastating earthquake and the tsunami in March 2011.

The merchandise trade balance, as an indicator, measures the difference in value between the country’s exported and imported goods during the reported period. A positive balance signifies a trade surplus and a negative balance signifies a trade deficit. The balance of trade reflects the net export of goods, or one of the components to form the country’s Gross Domestic Product. Generally, exports reflect economic growth, while imports indicate domestic demand. In case a larger-than-expected surplus is reported, this will usually provide support to the yen. The Ministry of Finance will release the official trade data at 23:50 GMT.

Bond Yield Spread

The yield on Japanese 2-year government bonds went as high as 0.013% on July 21st, or the highest level since July 16th (0.013%), after which it slid to 0.009% at the close to lose 0.001 percentage point compared to July 17th.

The yield on UK 2-year government bonds climbed as high as 0.681% on July 21st, or the highest level since June 26th (0.716%), after which it fell to 0.634% at the close to lose 0.003 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, contracted to 0.625% on July 21st from 0.631% on July 17th. The July 21st difference has been the lowest one since July 16th, when the yield spread was 0.598%.

Meanwhile, the yield on Japans 10-year government bonds soared as high as 0.431% on July 21st, after which it slid to 0.427% at the close to dip 1.8 basis points (0.018 percentage point) compared to July 17th. It has been the third consecutive drop.

The yield on UK 10-year government bonds climbed as high as 2.121% on July 21st, or the highest level since July 16th (2.158%), after which it slipped to 2.079% at the close to add 1 basis point (0.01 percentage point) on a daily basis.

The spread between 10-year UK and 10-year Japanese bond yields widened to 1.652% on July 21st from 1.634% on July 17th. The July 21st yield difference has been the largest one since July 15th, when the spread was 1.669%.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 193.03. In case GBP/JPY manages to breach the first resistance level at 193.63, it will probably continue up to test 194.51. In case the second key resistance is broken, the pair will probably attempt to advance to 195.11.

If GBP/JPY manages to breach the first key support at 192.15, it will probably continue to slide and test 191.55. With this second key support broken, the movement to the downside will probably continue to 190.67.

The mid-Pivot levels for today are as follows: M1 – 191.11, M2 – 191.85, M3 – 192.59, M4 – 193.33, M5 – 194.07, M6 – 194.81.

In weekly terms, the central pivot point is at 192.31. The three key resistance levels are as follows: R1 – 195.74, R2 – 197.80, R3 – 201.23. The three key support levels are: S1 – 190.25, S2 – 186.82, S3 – 184.76.