GBP/JPY Forecast Video for 18.05.23

British Pound vs Japanese Yen Technical Analysis

The British pound has rallied a bit during the trading session on Wednesday, as we continue see overall bullish pressure in this market. That being said, there is a significant amount of resistance just above and the market will have a lot to deal with to get above it. If we can, then the market more likely than not will reach toward the ¥172.50 level, which was the most recent swing high. Anything above there then allows the market to become more of a “buy-and-hold” situation that will probably go looking toward the ¥175 level.

On short-term pullbacks, I still like the idea of buying this pair as it has been so bullish for so long. Ultimately, the market will have to try to find some type of value, and it certainly looks as if the market has plenty of support all the way down to at least the ¥167.50 level, but after that we also have the 50-Day EMA just below there that is rising rather rapidly, offering a little bit of technical support as well. Finally, we have the ¥165 level, which is where the trend is probably going to be decided. Anything underneath there could change a lot of things but you would see that throughout the Japanese yen currency pairs, not just this one.

As long as the Bank of Japan continues to practice yield curve control, it’s almost impossible for the Japanese yen to have any success strengthening against other currencies for a longer-term move. Because of this, it continues to be a “buy on the dip” market, and probably will be for the foreseeable future. If you squint, you can make out a bullish flag, although it’s not necessarily the best shape, but clearly after that impulsive candlestick 2 weeks ago there are still quite a few buyers in this area trying to get involved.

Keep your position size reasonable, but this still looks like it’s a one-way trade given enough time. I do anticipate that the area near ¥172.50 is going to be difficult to break through, but the market is obviously building up a lot of pressure to at least attempt to do so.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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• The euro has tried to rally a bit during the trading session on Thursday, but, it still has a little bit of a headwind above it.
• Therefore, I think it’s difficult to think of this as a market that is going to truly take off to the upside easily.
• With this being the case, I think it’s probably only a matter of time before we get a bit of a bounce, but I don’t necessarily think it’s easiest thing to happen at this point.
• I expect a lot of volatility going forward, which is quite typical for this market.

That being said, we are sitting at a massive support level in the form of the 0.85 level, which is a large, round, psychologically significant figure and an area that has mattered multiple times in the past. I think it is more likely than not that we do get a bounce from here and we certainly are trying to do so.

The European Central Bank will be a major driver

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However, I believe that the major driver is going to be the ECB and whatever it is, they decide in June. While most traders believe that the ECB is going to cut rates if they don’t, that could very possibly send this market higher on its own. Either way, I think a lot of technical support sits just below. And that’s something that you need to be conscious about and cognizant of.

If we were to break down below the 0.8475 level, then it’s likely that the EUR/GBP market could go down to the 0.84 level, which is a massive support level on longer term charts as well. And of course, around figures. So, I do think we’re getting ready to make a bigger move. We’ll just have to wait and see what it is and just simply follow. Once we do get a move, it could be rather profitable, assuming that you are paying attention and of course positioned with an appropriate size as the tick value in this pair is much more than most other currency pairs.

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Economists forecast the Core PCE Price Index to increase 2.8% year-on-year in April after a rise of 2.8% in March. Sticky inflation figures could impact investor expectations of a September Fed rate cut.

However, investors should consider the personal income and spending figures. Upward personal income and spending trends may fuel demand-driven inflation and a more hawkish Fed rate path.

Economists forecast personal income to increase by 0.3% in April after rising by 0.5% in March. Furthermore, economists predict personal spending to increase by 0.3% after advancing by 0.8% in March.

With the Personal Income and Outlays Report in focus, FOMC member chatter also needs consideration. Reactions to the Report and views on the Fed interest rate trajectory could influence buyer appetite for the USD/JPY.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the Tokyo inflation numbers and the US Personal Income and Outlays Report. However, central bank commentary also needs consideration amidst shifting sentiment toward BoJ and Fed policy goals. Hotter-than-expected US inflation numbers may tilt monetary policy divergence toward the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY remained comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY break above the 157.5 handle could support a move toward the 160 handle. Moreover, a return to 160 could give the bulls a run at the April 29 high of 160.209.

Inflation, retail sales, and unemployment numbers from Japan need consideration before the US session.

Conversely, a USD/JPY drop below the 156 handle could give the bears a run at the 50-day EMA. A fall through the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 57.37 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.

• The Swiss franc initially pulled back just a bit during the trading session on Wednesday, but then turned around to show signs of life.
• The ¥172.75 level is an area that we have seen interest at previously, in the form of resistance. Keep in mind that we are close to the top of the candlestick where the Bank of Japan intervened, and therefore it does make a certain amount of sense that we continue to go higher.

On the other side of the equation, we have the Swiss National Bank, which has cut rates, but at the end of the day, the interest rate is still higher in Switzerland than it is in Japan, I think that continues to be the case. Even if the Swiss were to cut again, it would still favor the Swiss franc over the longer term as far as swap is concerned. I’ve been hanging onto short Japanese yen positions in multiple currencies including this one and will continue to do so.

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Technical Analysis

The technical analysis is of course bullish, as it is against almost anything denominated in Japanese yen. Ultimately, I think this is a market that will try to go to the ¥175 level above, which is the top of the massive intervention candle that happened several weeks ago. If we can break above there, then it becomes more or less a “buy-and-hold” type of trade. However, that’s not exactly what I find the most interesting about the price chart, rather what it can tell you about the rest of the Forex world if you pay close attention.

Both are funding currencies

Both of these currencies are low yielding currencies, and therefore they are funding currencies. What I mean by this is that a lot of carry traders are short of both the Swiss franc and the Japanese yen, against other currencies that offer more. With that being the case, they get paid at the end of every day. Furthermore, you can take loans from one country and invest in the other, which is obviously something that’s more of an institutional trade. As long as the Swiss franc continues to gain strength against the Japanese yen, then it’s a simple matter of shorting the yen against anything that offers a reasonable return as far as interest is concerned.

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• GBP/USD is under profit-taking pressure for the second day in a row, retreating from its two-month high of $1.28 touched on May 27.
• Some support for the US dollar countered the strong GBP momentum stemming from a hawkish Bank of England.
• Recently, Fed officials have indicated that the funds rate will not be cut until several months of inflation decline, adding to the more hawkish policy requirements and boosting the dollar.

However, the delay in BOE rate cuts is limiting the downside. Despite the UK’s annual inflation rate easing to 2.3%, approaching the bank’s 2% target, the reading came in above expectations of 2.1%. Now, investors favor the first BOE rate cut in September rather than the previous June consensus. Also, the possibility of a June rate cut has diminished due to UK Prime Minister Sunak’s surprise announcement of a general election in early July. While the BOE has stressed its independence, previous accusations of political interference have made markets more comfortable in preparing for a September rate cut.

According to licensed currency trading platforms, GBP/USD declined from its highest level since March (1.28) amid broad-based US dollar strength that dampened risk appetite. GBP/USD losses reached 1.2682 at the time of writing, as analysts pointed to growing concerns about Fed rate hikes driving sentiment deterioration, which typically supports the dollar. Commenting on this, Bob Savage, analyst at Bank of New York Mellon, says, “Risk aversion with rate hikes trumping AI hopes, with markets focused on policy and higher for longer with fears of reflation.” The analyst added, “The world is largely stuck watching rates with nearly $300bn of US supply this week, running through to the end of the month. Mix in Fed speakers and the Beige Book, and you have the makings of further trouble.”

The widely cited five-point rise in US consumer confidence on Tuesday is seen as boosting the dollar as it raises concerns that US inflation will remain elevated amid resilient consumer demand. Furthermore, this could reignite speculation that the Fed has little room to cut rates and could actually choose to raise them again.

In this regard, Minneapolis Fed President Neel Kashkari has given weight to this idea, saying that further rate hikes are still possible. Kashkari said at a monetary policy forum in Singapore, “I don’t think anyone has completely taken rate hikes off the table. Also, I think the probability of rate hikes is very low, but I don’t want to take anything off the table.” He added, “Wage growth is still very strong relative to what we think will ultimately be consistent with a 2% inflation target.”

Correspondingly, the overall US debt burden is a concern as the government looks to borrow billions of dollars by issuing new bonds. If demand for this debt is not enough, the yield offered by bonds rises, which supports the US dollar. In this regard, Win Thein, an analyst at Brown Brothers Harriman, says: “The weak demand for two-year and five-year UST auctions yesterday indicates that supply may become an issue for the market.” Added, “Dovish comments from the Federal Reserve added to the selling, as did a stronger-than-expected Consumer Confidence reading from the Conference Board for May.”

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Technical forecasts for the GPB/USD pair today:

According to the performance on the daily chart attached, the recent selling operations of the British pound against the US dollar GBP/USD have not yet taken it out of its upward channel. Technically, this may happen if the currency pair moves towards the support levels of 1.2625 and 1.2545, respectively. On the other hand, as we mentioned before, the resistance levels 1.2775 and 1.2835 will remain important for more bulls’ control over the trend and at the same time prepare for the psychological resistance 1.3000. Today, the GBP/USD pair will be affected by the announcement of the US economic growth reading, in addition to the number of weekly jobless claims, in addition to any statements from US Federal Reserve officials.

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• Since the beginning of today’s trading session (Thursday), the USD/JPY exchange rate has been subjected to selling pressure.
• It is starting from the resistance level of 157.66 and extending losses to the support level of 156.53 at the time of writing.
• According to forex trading platforms, the Japanese yen has rebounded from its four-week low as broad selloffs in risky assets have led to the yen being bought as a safe haven.
• Also, the yen found support from rising domestic yields, with Japan’s benchmark 10-year yield reaching 1.1% this week for the first time since July 2011.

Earlier this week, Bank of Japan board member Seiji Adachi indicated that the central bank might raise interest rates if the sharp decline in the yen leads to further inflation.

The Question Now: Can the USD/JPY Reach 160?

USD/JPY is approaching the intervention zone as it rises above the 157.00 level. Will we witness a retest of the 160.00 resistance level?

In this regard, asks Fouad Razaqzadeh, market analyst at City Index and FOREX.com. According to trading, the US dollar rose again, after the sudden rise in US consumer confidence in May, the strengthening of bond yields, and the continued tightening of the Federal Reserve. Therefore, our short-term expectations for the USD/JPY pair remain bullish amid the current policy stance of the Bank of Japan, the strong upward trend for the USD/JPY pair, and the strength of the US dollar in general.

At above the 157.00 level, the USD/JPY pair has now entered the intervention zone in the forex market, although the slow movement contrasts with such an action given Japan’s stated interest in the speed of the yen’s depreciation rather than the specific level it trades at. Thus, we may not see any action until the USD/JPY reaches the 160.00 level. The faster we reach there, the more likely we are to see intervention.

At the end of last month, we saw the USD/JPY pair fall by a whopping 5 figures after the Japanese Ministry of Finance, with the help of the Bank of Japan, sold billions of dollars of its reserves. After that, the high was just above the 160.00 high as well. Overall, USD/JPY remains in a strong uptrend as shown for example by the price remaining comfortably above the 21-day EMA. Moreover, USD/JPY has recorded temporary higher highs and higher lows since it fell from the 160.00 level following suspected intervention from the Bank of Japan at the end of April.

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USD/JPY Technical Analysis and Expectations Today

Regarding the support levels to watch, the first level is around 156.55, which previously served as resistance. Below that, the focus is on the 156.00 level, where the impact of the 21-day exponential moving average begins. Next is the 155 level, which is the last major support. Also, coincides with the upward trendline. On the upside, there is no significant resistance until the 158.00 level, which is the highest level since May 1st, when the dollar clearly declined against the yen following the second round of intervention by the Bank of Japan. Above this level, the focus is on the 160.00 level, just below the April high of 160.21.

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• High impact US Preliminary GDP data is due today, and this is likely to determine the course of the US Dollar over the next 24 hours and possible longer.
• The Yen is the weakest currency so far today, and the strongest is the US Dollar, although the EUR/USD is likely to best for long USD today.
• The best opportunities to short the USD will likely arise in the GBP/USD currency pair.

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The US Dollar been rising in recent days, in line with its long-term bullish trend. The greenback has been broadly gaining since the start of 2024, albeit with deep bearish retracements.

Yesterday saw a strong rise in price which was given a tailwind by Fed Member Kashkari’s hawkish comments on inflation and rates, which seemed to trigger a switch towards greater risk-off sentiment. US Dollar Treasury Yields are also near their long-term highs.

The hourly price chart shows that these strong gains sent the Dollar Index breaking out above former resistance levels, and it seems as if the nearest support level is now sitting at 104.63. This suggests that if the level holds then we should see the price rise, but unfortunately for bulls there is resistance overhead which was recently rejected at 104.78. This suggests that bulls will need to overcome this level before a long trade will start to look comfortable.

If the price can get established above 104.78, it is likely to rise further so that could facilitate a good long trade. Alternatively, if the price drops below 104.63, the Dollar will probably give up more of yesterday’s gains over the course of today.

The table below shows that the US Dollar has been the strongest major currency so far today, while the Japanese Yen has been the weakest.

Read on to get more of my Forex daily analysis and prediction.

Kashkari’s recent hawkish comments seem to have slightly pushed back expectations on the timing of the first US Fed rate cut. According to the CME Fedwatch tool, the consensus forecast for the initial rate cut has decreased in certainty that the first cut will be at the Fed’s November meeting, expected by about 60%. So, expectations have become more hawkish in recent days.

The US Preliminary GDP data due later today will be closely watched. Annualized GDP growth is expected to stand at 1.2%. If the rate is significantly higher, it could increase expectations of an earlier hike in September.

Recent gains by the US Dollar have been expressed most strongly against the weak Japanese Yen and Swiss Franc. The Japanese Yen is suffering from long-term weakness, but the weakness in the Swiss Franc is a bit strange and hard to explain. The Euro is also showing some weakness. This suggests that long USD will be best against the JPY (in USD/JPY) or the Euro (in EUR/USD).

The Japanese Yen is the weakest major currency, having lost today against every major currency except the Swiss Franc. The US Dollar is the strongest, which arguably makes the short-term outlook for the USD/JPY currency pair bullish.,

A cautionary factor for bulls should be the fact that the price is now close to the area which prompted an intervention by the Bank of Japan in support of the Yen. It is starting to seem as if all this intervention bought was time: it is hard for a central bank to strengthen their own currency without making strong rate hikes, which the Bank of Japan is not yet prepared to do.

The price has just bounced off the support level at ¥156.59, but has run into the first of three nearby resistance levels, and has rejected this resistance at ¥157.09.

A speculative long trade could be possible from another bounce off ¥156.59, but I would prefer to wait for a sustained bullish breakout beyond the resistance level at ¥157.50 which is also a major quarter-number. This can almost certainly only take place after the release of US Preliminary GDP data later today, and it will probably require a number higher than 1.2% to push the price above that level.

Due to the danger of intervention by the Bank of Japan against long trades, it may be better to use the EUR/USD currency pair as a vehicle to get long of the USD.

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The Euro is showing relative weakness today. However, the technical picture within the past few hours has shown a strong rise, but this is running into the nearest resistance level at $1.0816. There are two more resistance levels close by just beyond that level, so this cluster is likely to be significant and pivotal today.

If the price cannot get established above $1.0831, it is likely to turn bearish again later, in line with the longer-term weakness of the EUR. A bearish rejection of any resistance level after the US Advance GDP data release later could be a good short trade entry signal, and the EUR/USD currency pair is likely to be the safest major currency pair to use to be long of USD.

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The British Pound stands out as a relatively strong currency due to its long-term bullish trend and recent breakout to new multi-month high prices. This puts this GBP/USD currency pair into the category of one that will be better to trade against the USD, than to use to try to exploit any USD strength.

The technical bullishness is evidenced by very firm and persistent support at $1.2681 where there is a double bottom, arguably even a triple bottom.

Despite this, there are a few significant resistance levels relatively close by, although not as tightly packed as they are in the EUR/USD. This makes a long trade more interesting here, but it might be wise to wait for the price to get above the third resistance level at $1.2771 before entering such a trade. More aggressive traders can try entering long from another bullish bounce at the support level at $1.2681.

If the Preliminary US GDP data released later is notably weaker than the expected growth of 1.2%, looking for a long trade here could be a good idea.

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• The euro initially tried to rally a bit during the trading session on Wednesday, but then fell a bit as we continue to see a lot of noisy behavior around the world.
• Keep in mind that a lot of this is being driven by interest rates and the bond markets.
• The Japanese interest rates did rise slightly overnight due to the bond market selling off.
• All things being equal, this is a market that I do think continues to go higher, but we do see a lot of noise out there, and therefore I think you continue to see these dips coming back and forth.

Technical Analysis

The technical analysis in this pair does suggest that we should go higher over the longer term, but we may have to pull back in order to offer a bit of value. The ¥170 level so far has offered a certain amount of support, but if we were to break down below there, the next area of interest is the ¥169 level, an area that I think a lot of people will be paying close attention to as it previously was an area of resistance.

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We are approaching the top of the selling pressure that the Bank of Japan put into the market, due to its intervention a while ago. Ultimately, if we can break above the top of the move from last month, this is a pair that could go much higher, perhaps reaching to the ¥175 level, maybe even higher than that given enough time. Either way, I have no interest in shorting this market because of this far too bullish, and it would not be until we break down below the ¥164 level that I would even begin to have the conversation of bounce shorting.

Ultimately, you get paid at the end of every day to hang on to anything short the Japanese yen, and I think that continues to be one of the major drivers going forward. Even if the European Central Bank decides to cut rates, the reality is that you can still drive a truck between interest rates in Europe and Japan, and at the end of the day that’s probably the only thing that really matters.

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• GBP/USD recovered above 1.2700 after posting large losses on Wednesday.
• US stock index futures trade deep in negative territory early Thursday.
• US economic docket will feature weekly Jobless Claims and Q1 GDP revision.

GBP/USD turned south in the American session on Wednesday and lost 0.5%, posting ts largest one-day loss since late April. Although the pair managed to recover above 1.2700 in the European morning on Thursday, it might have a difficult time gathering bullish momentum.

The negative shift seen in market mood helped the US Dollar (USD) find demand as a safe-haven and caused GBP/USD to push lower. Reflecting the risk-averse atmosphere, Wall Street’s main indexes lost between 0.7% and 1.05%.

Early Thursday, US stock index futures lose between 0.4% and 0.8%, suggesting that the selloff in US stocks could continue after the opening bell. In case safe-haven flows dominate the action in the second half of the day, the USD could gather further strength and force GBP/USD to stay on the back foot.

The US economic calendar will feature the weekly Initial Jobless Claims data. Investors expect the number of first-time applications for unemployment benefits to come in at 218,000 in the week ending May 25. A reading near 200,000 could support the USD, while a print at or above 230,000 could weigh on the USD with the immediate reaction.

The US Bureau of Economic Analysis (BEA) will release its second-estimate of the first-quarter Gross Domestic Product growth. In the initial estimate, the BEA reported that the US economy expanded at an annual rate of 1.6% in Q1. Investors see the BEA revising this data lower to 1.3%. A bigger downward revision could make it difficult for the USD to find demand. 

GBP/USD Technical Analysis

GBP/USD edged higher after testing the lower limit of the ascending regression channel. The Relative Strength Index (RSI) indicator on the 4-hour chart, however, remains below 50, pointing to a lack of recovery momentum.

On the downside, 1.2680 (lower limit of the ascending channel) aligns as immediate support before 1.2650 (100-period Simple Moving Average (SMA) on the 4-hour chart) and 1.2630 (100-day SMA). 

First resistance aligns at 1.2760-1.2750 (Fibonacci 78.6% retracement of the latest downtrend, mid-point of the ascending regression channel). If GBP/USD rises above this region and starts using it as support, it could stretch higher toward 1.2800 (psychological level, static level).

 

• GBP/USD recovered above 1.2700 after posting large losses on Wednesday.
• US stock index futures trade deep in negative territory early Thursday.
• US economic docket will feature weekly Jobless Claims and Q1 GDP revision.

GBP/USD turned south in the American session on Wednesday and lost 0.5%, posting ts largest one-day loss since late April. Although the pair managed to recover above 1.2700 in the European morning on Thursday, it might have a difficult time gathering bullish momentum.

The negative shift seen in market mood helped the US Dollar (USD) find demand as a safe-haven and caused GBP/USD to push lower. Reflecting the risk-averse atmosphere, Wall Street’s main indexes lost between 0.7% and 1.05%.

Early Thursday, US stock index futures lose between 0.4% and 0.8%, suggesting that the selloff in US stocks could continue after the opening bell. In case safe-haven flows dominate the action in the second half of the day, the USD could gather further strength and force GBP/USD to stay on the back foot.

The US economic calendar will feature the weekly Initial Jobless Claims data. Investors expect the number of first-time applications for unemployment benefits to come in at 218,000 in the week ending May 25. A reading near 200,000 could support the USD, while a print at or above 230,000 could weigh on the USD with the immediate reaction.

The US Bureau of Economic Analysis (BEA) will release its second-estimate of the first-quarter Gross Domestic Product growth. In the initial estimate, the BEA reported that the US economy expanded at an annual rate of 1.6% in Q1. Investors see the BEA revising this data lower to 1.3%. A bigger downward revision could make it difficult for the USD to find demand. 

GBP/USD Technical Analysis

GBP/USD edged higher after testing the lower limit of the ascending regression channel. The Relative Strength Index (RSI) indicator on the 4-hour chart, however, remains below 50, pointing to a lack of recovery momentum.

On the downside, 1.2680 (lower limit of the ascending channel) aligns as immediate support before 1.2650 (100-period Simple Moving Average (SMA) on the 4-hour chart) and 1.2630 (100-day SMA). 

First resistance aligns at 1.2760-1.2750 (Fibonacci 78.6% retracement of the latest downtrend, mid-point of the ascending regression channel). If GBP/USD rises above this region and starts using it as support, it could stretch higher toward 1.2800 (psychological level, static level).