BoE is to announce its interest rate decision today (12:00, GMT) and is widely expected to remain on hold at +0.75%. Currently, GBP OIS imply a probability of 98.35% for such a scenario and market focus could turn to the accompanying statement and the inflation report. A rather tight labor market and high inflation rate could provide grounds for a more hawkish tone, while a rather low growth rate and Brexit uncertainty could advise caution. The picture is blurred even further as news reports stated that UK and EU have reached a deal that could give UK financial firms access to the European markets. Philip Hammond’s recent statements about the end of austerity and the new budget, could improve the outlook for the GDP growth rate, however it is not expected to have been incorporated in BoE’s forecasts yet. Media also report that UK Brexit secretary Raab expects a deal by November 21st, providing further hopes for a soft Brexit. The pound jumped on the news, however volatility for GBP pairs could be on, as the BoE’s interest rate decision is due out later today.
Cable rallied on the news, breaking the downward trendline incepted since the 16th of October and the 1.2780 (S1) resistance line (now turned to support) and during today’s Asian session, tested the 1.2850 (R1) resistance level. As the prementioned downward trendline was clearly broken, we lift our bearish bias. Should the positive sentiment for the pound continue, we could see cable continuing to trade in a bullish market, but the overall direction may be dependent on the outcome of the BoE interest rate decision as well. Should the bulls continue to drive the pair, we could see it breaking the 1.2850 (R1) resistance line and aim if not break the 1.2920 (R2) resistance hurdle. Should on the other hand the bears take over, we could see the pair breaking the 1.2780 (S1) support line.
JPY strengthens as risks rise
USD/JPY dropped yesterday as the yen strengthened on further worries regarding the US-Sino trade relationships. Analysts point out that the Yen’s role as a safe have had weakened this year by higher returns of the USD. They also point out that in face of the growing risk of a worsening in the US-Sino trade war and the potential of a slowing in US growth rate, the yen may start gaining ground in the coming months. Volatility for JPY could continue should there be further headlines about the US-Sino relationships.
USD/JPY dropped yesterday breaking the upward trendline incepted since the 26th of October and tested the 112.72 (S1) support line. As the prementioned downward trendline was broken, we lift our bullish bias, in favour of a sideways scenario, however the pair’s future direction could include bullish tendencies as the US employment report for October tomorrow, could provide support for the USD. Should the market favour the pair’s long positions once again we could see it breaking the 113.25 (R1) resistance line and aim for the 113.95 (R2) resistance level. Should on the other hand, the pair come under selling interest, we could see it breaking the 112.72 (S1) support line and aim for the 112.15 (S2) support zone.
In today’s other economic highlights:
In the European session today we get from the UK the Manufacturing PMI for October and from the Czech Republic CNB’s interest rate decision. In the American session the US Manufacturing PMI for October is due out. Also be advised that Bitcoin corrected somewhat after Monday’s drop and should you be interested in the cryptomarket keep an eye out for our weekly crypto outlook due out later today.
USD/JPY H4
Support: 112.72 (S1), 112.15 (S2), 111.63 (S3)
Resistance: 113.25 (R1), 113.95 (R2), 114.55 (R3)
GBP/USD 4H
Support: 1.2780 (S1), 1.2700 (S2), 1.2630 (S3)
Resistance: 1.2850 (R1), 1.2920 (R2), 1.3015 (R3)
