GBP/JPY forecast for the week of February 20, 2017, Technical Analysis

The GBP/JPY pair fell a bit during the week, testing the 140 handle. This is an area that should be rather supportive though, so I would not be surprised at all to see this market bounce. If it does, it will be looking towards the 145 level for a target. A breakdown below the bottom of the hammer from the previous week would be a selling opportunity, but I believe that the buyers are about to get aggressive. Given enough time, anticipate that this market will continue the uptrend and go much further.

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GBP/JPY Forecast February 20, 2017, Technical Analysis

The GBP/JPY pair fell during the day on Friday but found enough support at the 140 level to turn things around and bounce. Because of this, I believe that the buyers are to get involved again, and perhaps try to drive this market towards the 143 level and the short-term. Longer-term, I believe that we will try to reach towards the 145 handle, which is a large, round, psychologically significant number. I don’t have any interest in shorting, at least not yet, as the lows continue to go higher. Volatility will be the norm in this move.

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GBP/JPY Forecast February 17, 2017, Technical Analysis

The GBP/JPY pair fell a bit during the day on Thursday, but quite frankly I see a massive amount of support just below to keep the market afloat. Because of this, I’m waiting to see a bounce or a supportive candle to start going long. If we can break above the top of the hammer from the Tuesday session, I feel that the market will then make its way towards the 145 handle. I think that the 140 level below is massively supportive, and thus I am long only when it comes to the Dragon.

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Analysts are Deeply Divided over The British Pound

The British pound is trading slightly higher today as analysts are divided on the direction of the British currency as we approach the triggering of article 50, the time when Britain begins proceedings to leave the European Union.

British Prime Minister Theresa May has promised the citizens of the UK that article 50 will be invoked no later than March 31st.

So where does the pound go from here?

Analysts from Bank of America, predict there will be a major sell off in the pound in the run up to the end of March when the UK breaks ties with the EU, driving the currency as low as $1.1500 as jitters take over the markets and investors park there money safer currencies such as the US dollar and Swiss Franc.

After the dust has settled and we move into April, the BOA predicts there will be a stunning reversal in the pound as the British government cements favorable trade deals with the EU and money starts pouring into the UK and business carries on again as usual

“We expect one final dip in GBP as Article 50 is formally triggered and as the EU formally responds and sets out its negotiating position. We think the crystallization of risks and the start of the countdown to Brexit may prove to be the low in GBP and the opportunity to enter GBP longs,” noted analysts from Bank of America

“We have no doubt that many political hurdles lay ahead for GBP in the years ahead, but we doubt that the markets will be in a perpetual state of panic over every Brexit-related headline,” they added.

Not all analysts are taking the same view including the team from Deutsche Bank, who have advised clients to “stay short the pound”. Citing that “while early clarity on a transitional arrangement between the UK and EU” would be a “key stabiliser for the pound”,such a deal “seems unlikely”.

“There are no fallback options for hard Brexit, negotiating multiple free trade deals in parallel with EU talks over a two-year time frame is neither realistic nor good policy.” They added.

Analysts from Credit Agricole also remain bearish on the pound and believe a rate hike from the Bank of England, which some are starting to predict wont eventuate,  and this will be another factor which will curb any gains in the pound.

“With Brexit-related uncertainty unlikely to fall with actual exit negotiations from the EU drawing closer and as the Bank of England is unlikely to make a case of higher rate expectations anytime soon, we believe GBP downside remains at risk,” they said.

The review was prepared by FIBO Group analyst Andrew Masters.

GBP/JPY Forecast February 16, 2017, Technical Analysis

The GBP/JPY pair fell slightly during the day on Wednesday, but quite frankly there is more than enough support below to keep this market going higher. If we can break above the top of the range for the day, I think that’s a buying opportunity that should send this market looking for the 145 handle. The 140-level underneath is massively supportive, and I believe the “floor” in the market. Expect volatility, this pair always has it, but given enough time I think the buyers are starting to flex their muscles yet again.

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GBP/JPY Forecast February 15, 2017, Technical Analysis

The GBP/JPY pair initially fell during the day on Tuesday, but found enough support to turn things around and form a hammer like candle. Because of this, the market should then reach towards the 145 level on a break at the top of the range for the day. This of course would be a continuation of the recent move higher that we have seen, and the 145 level has been resistive in the past. I currently believe that the 140-level underneath continues to be the “floor” in the market. With this, I am only buying.

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GBP/JPY Forecast February 14, 2017, Technical Analysis

The GBP/JPY pair Tire at the open on Monday, but then not only did that, it went above the top of the shooting star from the Friday session. The market looks as if it is ready to continue going higher, so short-term pullback should be buying opportunities as the market will then reach towards the 145 region again. I believe that the 140-level underneath is going to continue to be a bit of a “floor” in the market, so I believe in going long and have no interest in shorting the market currently.

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GBP/JPY forecast for the week of February 13, 2017, Technical Analysis

The GBP/JPY pair initially fell during the week but found enough support underneath the 140 handle to turn around to form a hammer. The hammer of course is a bullish sign, if we can break above the top of a hammer, the market should then reach towards the 145-level next, and then towards the 148 handle. Ultimately, the market should continue to show strength, as the British pound has shown quite a bit of bullishness as of late. I have no interest in selling, at least not until we breakdown below the most recent low.

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GBP/JPY Forecast February 13, 2017, Technical Analysis

The GBP/JPY pair initially tried to rally during the day on Friday, testing the 142.50 level. This is a market that continues to show bullish pressure, but if we can pull back and find plenty of buyers near the 140 handle, I think that will only add a stronger case to go long. Alternately, if we can break above the top of the shooting star for the day, the market should then reach towards the 145 handle. This is a market that is in a longer-term uptrend, and should continue to go much higher. I’ve no interest in selling. I believe that the British pound has put in a longer-term bottom against most currencies in the world.

This is a pair the does tend to be very volatile though, so a pullback really isn’t that surprising. The most recent low was higher than the previous one, so that’s the very essence of an uptrend. I have no interest in shorting, I believe that not only will reach the 145 handle, but we should then reach towards the 148.50 level. Ultimately, this is a market that should continue to find buyers on dips as it represents value. The Japanese yen has been sold off against most currencies around the world, and should continue to be. This is a bit of a “risk on” type of trade, and I believe that not only will the GBP/JPY pair continue to go higher, but I think most pairs against the Japanese yen well.

This pair tends to be a relatively choppy, but is prone to massive moves in one direction or the other based upon impulsive behaviors. This market looks like is ready to try to explode, but ultimately, we are essentially in a consolidation area but that normally means that we are trying to build up enough momentum to finally make an explosive moved. When I look around the markets, I don’t see the reason this market will continue to go higher longer term. You must be willing to “ride the Dragon”, which is typically an eventful trade. I’m a buyer, but I recognize that a breakdown below the 130.50 level would be negative.

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GBP/JPY Forecast February 10, 2017, Technical Analysis

The GBP/JPY pair broke higher on Thursday, clearing the top of the hammer that formed on Wednesday. I believe that we are going to continue the uptrend, and therefore I’m looking for this market to reach towards the 145 level over the next several sessions. Pullbacks will continue to be bought, and the lows keep getting higher, the very essence of an uptrend. I think we break above the 145 level as well, and head towards the 148 handle over the longer term. I have no interest in selling as this strong trend looks likely to continue.

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GBP/JPY Forecast February 9, 2017, Technical Analysis

The GBP/JPY pair fell during the day on Wednesday, but found the 140 level to be supportive enough to keep the market higher. I believe that a break above the top of the range for the session on Wednesday should send this market looking for the 144 handle again, but it will be choppy. The British pound is starting to show signs of support and life, so it would not surprise me at all to see this market reach to the upside. If we do breakdown below the bottom of the range for the day, I believe we will find 138.50 to be supportive underneath.

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GBP/JPY Forecast February 8, 2017, Technical Analysis

The GBP/JPY pair went back and forth on Tuesday, showing signs of indecision. The 139-level offered support, but we also see a significant amount of resistance forming at the 140 handle. If we can break above the 140 handle, then the British pound should continue to go higher. Alternately, if we can break down below the bottom of the range for the session on Tuesday, the market will more than likely reach towards the 136.50 level below which was supportive. Currently, expect a lot of volatility as you would expect in this pair typically, especially considering we are close to so many different levels.

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GBP/JPY Forecast February 7, 2017, Technical Analysis

The British pound fell a bit during the day on Monday, testing the 140 handle. This is an area that should start to see significant support though, based not only upon the psychological significance of the row number, but also the fact that we had formed a gap below at one point. With this being the case, I’m a buyer on a break above the top of the candle from the Monday session or some type of supportive candle. I’m not overly interested in shorting now, as I see too many opportunities for buyers to step back into the market.

GBP/JPY forecast for the week of February 6, 2017, Technical Analysis

The GBP/JPY pair fell during the week, testing the 140 level for support. We closed above it, so now it will be interesting to see whether or not we can break down. If we do, the market should then reach towards the 137 handle. Alternately, some type of supportive candle could be a buying opportunity but we will more than likely see that on a short-term chart, not the weekly chart. Given enough time, I think the buyers do return, after all we have broken out above significant resistance.

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GBP/JPY Forecast February 6, 2017, Technical Analysis

The GBP/JPY pair formed a neutral candle during the day on Friday, as we continue to bounce above the 140 handle. If we can break above the top of the candle, I think that the market is then going to go looking for the 145 level. Alternately, if we breakdown below the 140 handle, we will more than likely reach towards the 138.50 level, looking for support. Currently, I prefer to go long and not sell, but a breakdown below the 140 level would certainly change that attitude. Either way, expect a lot of choppiness.

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It Is Not Easy To Trade The Yen

Don’t be surprised if you read the conclusion of this writing at the head of the topic, because nothing can describe the yen trading better brutal fact. Every day you will always hear and read people analyzing Yen and giving you some prophecies, and maybe you noticed that most of it is guessing. I say that the Yen was always ambiguous currency for most of the traders. The reason is that the Yen has specific traits and specific reasons affecting its direction. Herein we will try to focus on the factors consisting three major sides determining the next Yen movements. Bank of Japan (BoJ) policies, fundamental and Technical analysis. Finally we will put them together to forecasting the price movement next period.

Bank of Japan Policy

It is well known that the BoJ is the most explicit and transparent central bank, however; it is a little bit complicated. The main role of any central bank is to control the inflation and deflation processes. The BoJ is processing these two things either with funding absorbing or fund supply operations. Without delving into sophisticated details about the fund supply operations, you need to know that these operations are monetary tools used to supply the market with local currency (Yen) in order to depreciate the current overly evaluated currency. The BoJ adopted this policy since September 2016 using collateralized tools as purchasing / borrowing Japanese securities (JGS) – outright or repo, uncollateralized tools as commercial papers, or certificates of deposits (CDs).

These operations are conducted through auctions, these auctions to be conducted -according to the latest monetary policy issue of 8 to 10 times a month for the next 4 months. The main problem is to be up to date with the results of these auctions and make your calculations to determine the exact effect on the currency.

On the other hand, the USD dominated assets can be used to supply the bank with the USD, and here another problem arises. The USD dominated assets has a very short due in days, in order to refund these money, BoJ sometimes has to make some SWAPs. Foreign exchange SWAP forms another two liabilities on the government: a) refunding the borrowed dollar within a period do not exceed the one year (most of times it is weeks or days) b) paying interests for that debit. The good news is it keeps the currency in a tide range, but sometimes it makes some corrections to cover these SWAPs when it comes to due.

Yen Specific Traits

It may be drawn to your attention two main characteristics regarding the Yen pairs. First, it is always quote currency and never base, although it is one of the minors even before the emerging currencies (as ZAR and HKD). Second, it is an index currency which means all base currencies are moving in the same direction before the yen regardless their main indexes.  That would get us to a primary result that the Yen is so vulnerable and can be affected easily by any external factor more than the Japanese internal factors itself. In other words, if any of the base currencies had major data release like CPI, employment, interest rates, it will leave a significant effect on the Yen more than any other currency.

For instance; we can see after the release of the New Zealand inflation data for December, inflation increased to be graeter the previous month (0.4 YoY) ;and moreover, forecasted (0.3 YoY). The kiwi soared before the Yen around 140 pips while with GBP it was 80pips, with AUD 60 and with the USD raised no more than 50 pips. Another example the increase in the US unemployment rate previous week caused the Dollar to increased before the Yen 60 pips, GBP 50pips, AUD50 pips, NZD 40 PIPS; meanwhile it increased before the Euro itself only 30 pips.

I want to highlight the fact that he Yen is massively affected by the data putting bearish pressure on it; meanwhile the data which gives the Yen boost it does not usually react to it. For instance; the Yen showed no major bullish movements when the other central banks started the interest rate cut wave in 2015/2016.

Fundamental Orientation

Regarding the fundamental factors in general, we can see no major correlation between the numbers and the prices. However; Japan as a first class exporter, the yen shows a harmonized correlation to the trade balance numbers. The following diagrams show us the rising of the trade balance from -1.63 trillion Yen deficit April 2014 till it reached 0.36 trillion January 2017.

Japanese trade balance Adjusted
Japanese trade balance Adjusted

Technical outlook

The general outlook of the forex market is giving me signals for a very distinguished period which I believe will change the direction of most of the currencies for a long period. Yen as a passive currency will have to wait other currencies to make its mind; however, I believe that there will be some volatility within tide range.

Japan Bonds 2Y Yield
Japan Bonds 2Y Yield

 

Japan Bonds 10Y Yield
Japan Bonds 10Y Yield

USD/JPY is much correlated to the NIKKIE225 which started to show weakness. We can also recognize the weak yields market through the next diagrams.

N225 weekly chart
N225 weekly chart

The next 2 days will be decisive for the Yen on the long term. I believe the Yen pairs are going to bull shortly before it starts to retrace on the medium term. The next chart is a USD/JPY and it is applicable for all other Yen pairs. The good thing about the Yen that it has a ‘decisive personality’, which means once it decides to move in one direction it continues for a very long time. If the scenario worked like that we will see USD/JPY retracing to the 38.2% of 111.6 then it will continue then to the 50% 108.8. We strongly recommend applying this strategy to the NZD/USD and avoiding GBP/JPY.

USD/JPY [weekly chart]
USD/JPY [weekly chart]

To sum up what we said in some lines

  • Yen has special traits like, (unique quote currency, non-volatile and directional, the most effected currency by the economic calendar).
  • BoJ since September 2016 adopting the fund supply operations, which targets the Yen depreciation.
  • BoJ excessive usage of the SWAP market may be bad for the Japanese economy, but good for traders.
  • Ambiguity of the auctions results make the mission harder.
  • Fundamentally the Yen is much correlated to the trade balance more than the other indicators.
  • Technically we may see next weeks bearish Yen pairs, however any strong event on the economic calendar puts the Yen on the Bear side, it will be welcomed.
  • It Is Not Easy To Trade The Yen.

GBP/JPY Forecast February 3, 2017, Technical Analysis

The GBP/JPY pair fell during the day initially on Thursday, but continues to see quite a bit of interest at the 140 handle. Because of this, I believe it’s only a matter of time before the buyers return. Having said that, we have a relatively negative candle that we are looking at, so I would prefer to see a supportive candle that I can get involved with. I’m still bullish, but I recognize that the British pound had a fairly rough session during the day, so we may need to settle down a bit.

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GBP/JPY Forecast February 2, 2017, Technical Analysis

The GBP/JPY pair broke above the top of the Tuesday candle during the Wednesday session and showed quite a bit of bullish pressure. By breaking the top of the hammer that formed on Tuesday, it looks as if the market is ready to continue going higher but there is a significant amount of resistance at the 145 handle. Because of this, expect a pullback, but I think short-term charts will offer nice buying opportunities. Once we break above there, I feel that the market then goes to the 148 handle. Ultimately, I have no interest in selling as I believe the 140 level is support.

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GBP/JPY Forecast February 1, 2017, Technical Analysis

The British pound fell against the Japanese yen initially on Tuesday, but found enough support above the 140 level to turn around to form a nice-looking hammer. A break above the top of a hammer should be a buying opportunity, as we should continue to reach towards the 145 handle above. A break above there since the market then reaching towards the 148 level. A breakdown below the 140 level would be bearish, but I believe that the buyers will return sooner rather than later. With this, I favor the longer-term buy-and-hold mentality.

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GBP/JPY Forecast January 31, 2017, Technical Analysis

The British pound fell rather significantly against the Japanese yen on Monday, forming a very ugly red candle. However, I see a significant amount of support below at the 140 handle, so I think that given enough time, the buyers will return. I will wait for daily close to show signs of buying pressure, and then take advantage of it. Until then, I’m going to sit on the sidelines. Short-term traders may be willing to sell this market, but I believe that the buyers could come right back in and push hard. Because of this, I’m very hesitant to sell.

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