GBPJPY Longs Attractive – Falling Yen Brings Short Term Buyers Into The Market

Early Tuesday morning, the Bank of Japan published its monthly report on the Corporate Goods Price Index (CGPI) for June. Data showed that, in comparison with one year earlier, wholesale prices dropped 4.2% last month. In May, the price Japanese companies charge each other for their goods and services registered an annualized decrease of 4.3%. The domestic final goods prices for June fell by 1.2% on a yearly basis.

Ahead of Japan’s forecasts on consumer inflation, which will be out on July 13th, markets are raising their expectations of lower growth in the Japanese economy. The government is expected to slash its growth forecast for the current fiscal year ending in March 2017 to 0.4%, from a previous projection of 1.2%. The price-adjusted growth forecast for the same period is also expected to be cut to 0.9%, compared with an increase of 1.7% projected in January.

The downward revisions reflect a Japanese economy struggling to meet its growth and inflation targets, coupled with headwinds around the world further adding to the risks of more slowdowns, as lower growth in other economies could affect demand for Japanese exports, which form the biggest chunk of the Japanese economy.

In the trading session on Tuesday, the yen is weakening further amid speculation that fresh stimulus may be deployed by Prime Minister Shinzo Abe, whose ruling coalition won the elections to the Upper-house over the weekend. The expectations of a further easing of the monetary policy were also boosted following the meeting between Abe and the former Federal Reserve Chairman Ben Bernanke, at which  Bernanke emphasised that further monetary easing policy should be implemented to end the deflation in Japan’s economy swiftly.

Today, in London, the BOE governor Mark Carney is testifying on the Bank of England Financial Stability Report before the Treasury Select Committee. Governor Carney again hinted that more stimulus may be added to the UK economy to deal with the potentially negative impact from Britain’s leaving of the EU. This Thursday, the central bank is scheduled to hold its July meeting, and widely expected to cut the official bank rate by 0.25 percentage points to a record low of 0.25%. The benchmark rate has been held stable at 0.5% for over seven years.

gj d1

Fig. GBPJPY D1 Technical Chart

A softer Japanese yen has sent the pair GBPJPY higher from a three-and-half year low of 128.558, which was formed last Wednesday. The short-term SMA 14 has just been pierced by the latest candle from below, and the price may soon attempt to cross over and stabilize over the MA. This implies that buyers’ may be returning to the market. The bullish momentum is anticipated to continue temporarily, and the pair is likely to pull back after testing the resistance marked by the lower channel line of the downward-sloping trend channel.

Trade suggestion

Buy stop at 136.776, Stop loss at 132.784, Take profit at 141.198

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