Downward Structure Will Persist after Adjustment

Central Bank

Forex

Summary:

In July, there was zero growth in the UK's GDP, which has increased the likelihood of a 25 basis point interest rate cut by the Bank of England (BOE) in November. Following comments made by Junko Nakagawa, a Member of the Policy Board of the Bank of Japan (BOJ), the yen rose, causing the GBPJPY to decline for the second consecutive day.

SELL GBPJPY

Close Time

CLOSED

184.837

Entry Price

179.420

188.320

207.644 -0.679 -0.33%

348.3

Pips

Loss

179.420

188.347

Exit Price

184.837

Entry Price

188.320

Fundamentals

Kazuo Nakagawa, a Member of the Policy Board of the BOJ, stated on Wednesday that the BOJ may consider adjusting the extent of its monetary easing if economic conditions and pricing align with its forecasts. Despite interest rate hikes in July, real interest rates remain deeply negative, indicating that the accommodative monetary environment persists. If long-term rates surge, the BOJ may re-consider its balance sheet reduction plans during upcoming policy meetings. (bullish for the yen)

The Office for National Statistics in the UK released new data on Wednesday indicating that after stagnation in June, the GDP growth in July was flat. This figure fell short of market expectations, which had forecasted a 0.2% growth for the month. Meanwhile, the services sector index increased by 0.6% on a three-month rolling basis in July, down from 0.8% in June.

The stagnation in economic growth has heightened expectations that the BOE may implement a 25 basis point interest rate cut in November. Some traders are also predicting a potential further rate cut in December.

Additionally, the UK's trade balance report indicates that the trade deficit in July widened from GBP5.324 billion in June to GBP7.514 billion, marking the largest trade deficit since April. Imports decreased to a four-month low of GBP77.12 billion, while exports fell to a 25-month low of GBP69 billion. (bearish for pound)

Downward Structure Will Persist after Adjustment_1

Technical Analysis

The GBPJPY has been consistently on a significant downtrend, experiencing approximately a 3% decline following a false break at the 193.50 level. The market is currently testing the 184.55 support threshold, with technical oscillators indicating a strong bearish trend in the short to medium term. The stochastics have sharply entered the oversold zone, while the Relative Strength Index has fallen below the neutral level of 50.

Further declines could pave the way to the next support level, which is rooted in the psychological barrier of 180.00. However, the GBPJPY may need to contend with resistance zones at 183.76 and 182.29 before that potential drop materializes.

A break above the 189.78 resistance level and the 20-day SMA could propel the market towards the 200-day SMA at 192.15. If the upward momentum continues, the market might surpass the 193.50 resistance level.

Overall, the GBPJPY appears to be weakening again after a notable rebound from its eight-month low of 180.00, maintaining a downward structural trend. It is recommended to go short at the highs.

Trading Recommendations

Trading Direction: Sell

Entry Price: 186.00

Target Price: 179.42

Stop Loss: 188.32

Deadline: September 26, 2024 23:55:00

Support: 184.55, 183.76, 182.82

Resistance: 186.40, 188.15, 189.77

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