Trading dollar pairs today is extremely risky: the US Federal Reserve will announce its verdict at the end of the US trading session on Wednesday, which will determine the future fate of the US currency. And although most analysts are confident that the Fed will keep the monetary policy parameters unchanged, there are serious risks of false price movements, especially in the short period of time between the publication of the final communique and the press conference of Fed Chairman Jerome Powell. During periods of such emotional volatility, it is best to stay out of the market: traders will not immediately crystallize their general opinion on the outcome of the June meeting, especially if the Fed voices contradictory and ambiguous signals. Therefore, today it is possible (and necessary) to distract yourself from the currency pairs of the major group by paying attention to cross-pairs, which are almost not affected by the greenback.
The pound/yen pair can be distinguished among the numerous cross-pairs. This cross shows the most stable "one-way" movement: since November last year, the pair has been within the framework of a prolonged upward trend. Despite the temporary downward pullbacks, the pound is persistently moving up. Over the past eight months, the pair has gone through 2,000 points, and, apparently, this is not the limit. At least, the fundamental picture is still in favor of the British currency, despite a certain "fly in the ointment". But as for the prospects of the yen, the situation looks like a mirror.
First, the Japanese economy is recovering at a rather weak pace. In particular, Japan's GDP for the first quarter of this year did not meet forecasts: the indicator came out in the negative area and in the red zone, falling short of the forecast values (-1.3% q/q with a forecast decline to -1.2%). This is the first decline in the indicator in the last three quarters – for example, in the 4th quarter of 2020, GDP growth was 2.8%. In addition, in May, the Japanese government lowered its forecast for the economy (for the first time in 3 months) amid the negative impact of new quarantine restrictions. Secondly, the yen is under the background pressure of the Bank of Japan's dovish position. According to the head of the Japanese central bank Haruhiko Kuroda, the BOJ will continue to ease even after the end of the pandemic. According to him, purchases of ETFs are "still" necessary, and members of the central bank are not going to stop them in the foreseeable future. In addition, the BOJ can extend the duration of the bailout program (which is due to end in September), "if it deems it necessary." The corresponding statement was made not so long ago by Masayoshi Amamiya, the deputy head of the Japanese central bank.
Against this background, the pound looks more attractive. For example, according to data published yesterday, British inflation in May exceeded the Bank of England's target, reaching 2.1% (in annual terms). On a monthly basis, the indicator also exceeded the forecast values, reaching the level of 0.6% (with growth forecast to 0.3%). Clearly, as the British economy recovers, inflationary pressures continue to rise. In particular, fuel prices last month were 18% higher than a year earlier, while the cost of clothing and shoes increased by more than 2%. It should be recalled here that at the end of May, quarantine restrictions were significantly eased in Britain (hotels, hostels, theaters, concert halls, museums, cinemas were opened, the ban on the admission of spectators to sports events was lifted; universities and schools started working "in full force" , etc.). Therefore, in June, inflation may again surprise investors with strong figures against the background of an increase in British consumer activity.
At the moment, the GBP/JPY cross-pair has suspended its upward movement: the pound retreated from the local high of 155.50 and lay in a drift. This is due to the fact that London has extended the quarantine measures in the country for another four weeks. The British authorities have moved the deadline for lifting almost all restrictions from June 21 to July 19 - "for the sake of providing coronavirus vaccination to a more significant number of residents." According to preliminary calculations, by this date, two-thirds of the adult population will be vaccinated with two doses, including all residents over 50 years old, all "vulnerable" persons, all health workers and social workers.
The influence of this fundamental factor is limited. Commenting on yesterday's cabinet decision, British Prime Minister Boris Johnson said he was confident that after July 19, the decision to ease the quarantine will not have to be postponed again. In addition, Brits are actively vaccinated against the coronavirus: more than 45 million people have received the first dose of the COVID-19 vaccine, and more than 30 million Brits have already completed the vaccination process. All this suggests that the decline of the GBP/JPY cross pair is temporary, and, accordingly, long positions can be considered for the pair.
From the technical point of view, GBP/JPY is located above the middle line of the Bollinger Bands indicator on the daily chart, as well as above all the lines of the Ichimoku indicator (including the Kumo cloud). If the Kijun-sen line crosses the Tenkan-sen line (which is located at 155.00), the Ichimoku indicator will form a bullish Parade of Lines signal, indicating the priority of the upward movement. In this case, the pair can be considered long positions with the main target of 156.10 – this is the upper line of the Bollinger Bands on the same timeframe.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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