JPY weakened somewhat as BoJ’s interest rate decision was to remain on hold as was widely expected. The decision was accompanied by cuts in the forecasts for the core CPI rate in 2019/20 and a small boost in the forecast for the GDP growth rate. In the accompanying statement, the bank left the forward guidance on rates unchanged as it stated that it will keep current extremely low rates for an extended period of time. The bank also noted that the core CPI rate maintains a weak trend if compared to economic expansion and the current tight labour market. Analysts pointed out that the bank seems to be in no hurry to reach its +2.00% yoy inflation target, yet we maintain our concerns about the course of the Japanese economy and the negative effect it may have on the JPY. Also a weakening of the JPY could occur as a safe haven, should there be further positive developments for the US-Sino trade relationships. The bearish sentiment for the JPY could strengthen and volatility could extent throughout Governor Kuroda’s press conference later on. USD/JPY maintained a range bound motion yesterday, rising slightly albeit remaining between the 109.20 (S1) support line and the 110.15 (R1) resistance line. We could see the pair maintaining a sideways motion today as no important financial releases affecting the pair are due out. Some sensitivity could be displayed should there be any headlines about the US-Sino trade relationships. Should the pair’s long positions be favored by the market, we could see the pair, breaking the 110.15 (R1) resistance line and hover above it. Should on the other hand, the pair come under the selling interest of the market, we could see it breaking the 109.20 (S1) support line and aim for lower grounds.
GBP jumped on strong employment report
The pound strengthened against the USD yesterday, after a strong labour report for November, which showed a tight UK labour market. The unemployment rate ticked down (4.0%) while the average earnings ticked up (+3.4% yoy) and the employment change figure rose reaching an impressive 141 k (vs. expected 88k). The strengthening was also encouraged by articles suggesting that the UK parliament moves closer to preventing a no deal Brexit. Labour party seems to be increasingly likely to back an extension in the March 29th deadline and articles imply that the main opposition party may also be backing a second referendum. Analysts point out that the overall probability of a market friendly Brexit outcome is currently helping the pound. We also maintain a positive attitude for the pound as Brexit political developments seem to be moving towards a softer Brexit currently, however we would also like to note that uncertainty is still in the cards as the opposition may need a number of Tory MP’s to back their plans. We could see further volatility for the pound as Brexit headlines could continue to reel in. GBP/USD rose yesterday, breaking the 1.2880 (S1) resistance line (now turned to support) and tested the 1.2960 (R1) resistance line. We could see the pair rising if there are more positive headlines about Brexit over the next couple of days. Should the pair find fresh buying orders along its path, we could see it breaking the 1.2960 (R1) resistance line and aim for the 1.3070 (R2) resistance level. Should the bears take over, we could see the pair aiming if not breaking the 1.2880 (S1) support line targeting lower grounds.
Today’s other economic highlights
In today’s European session, we get from Turkey the minutes of CBRT’s last meeting, while in the American session we get Canada’s retail sales growth rates for November, Eurozone’s preliminary consumer confidence indicator for January and form the US the API weekly crude oil inventories figure.
USD/JPY H4
Support: 109.20 (S1), 108.25 (S2), 107.40 (S3)
Resistance: 110.15 (R1), 111.40 (R2), 112.55 (R3)
GBP/USD H4
Support: 1.2880 (S1), 1.2795 (S2), 1.2700 (S3)
Resistance: 1.2960 (R1), 1.3070 (R2), 1.3175 (R3)
