Today, the spotlight most likely will fall on the Bank of England and its monetary policy. The Bank will decide on its interest rate, which is expected to have remained the same, at +0.75%. The rate has been at that level since it got a 25bps boost in August of last year. The BoE seems to be willing to maintain the rate at the same level, until there is more clarity in regards to how the UK will be departing from the EU. But with the recent developments, the question here is, will it actually leave or not?
As we know, the Bank of England is quite vocal about the whole Brexit issue, as they have stated many times that the current uncertainties are making the UK economic data more volatile. The Committee states that the overall growth has slowed and business investments (together with foreign ones) are falling. One positive aspect is that the UK consumption is still at good levels, mainly due to real household incomes growing. But the growth in real incomes is supported by sliding inflation numbers, where the last reading of the headline figure for the month of September came out at +1.7%. Let us remind the reader that the Banks CPI target is at +2.0%. Another important indicator, which the BoE monitors is the UK’s GDP growth figure. The last QoQ number which came out in September was below zero, at -0.2%. The number has not been in the negative territory since the end of 2013. If the global economic growth has been relatively strong, UK’s economy is not able to show similar good results right now and the Brexit uncertainty might continue weighing in on that. The Monetary Policy Committee are keeping a close eye on the sterling’s exchange rates, which are directly affected by any headlines coming out from the Brexit saga. In our view, although we saw some recovery in the pound lately, still, the downwards pressure remains and GBP easily move back down if we start seeing more complications around UK’s withdrawal from the EU.
Something else that the BoE is worried about and continues to monitor carefully are the developments in the China-US trade tensions. Given that the relationship between the world’s two major economies is not going well, their inability to reach a consensus on their trade disputes are having a direct impact on the global economy and the markets. And this is including the UK, which has strong trade ties with both of those sides. The UK is a major importer of US and Chinese goods and also it invests into these two big economic players as well, so weaker growth in those two countries is not something that the UK needs.
GBP/USD — Technical Outlook
As we can see, GBP/USD is still balancing above its short-term tentative upside support line drawn from the low of September 3 rd. But at the same time, after hitting the 1.3012 resistance zone, the pair started moving slightly lower and is now also trading below a very short-term tentative downside resistance line taken from the high of October 21 st. With the help of that downside line, GBP/USD is forming somewhat of a descending triangle pattern. For now, we will remain more on the neutral side and wait for a clear break of one of our levels, before we examine a further directional move.
If GBP/USD goes on and breaks below the 1.2808 hurdle, which marks the lows of October 27 th, 28 thand 29 th, this could attract more sellers into the game and open the door for a possible test of the 1.2706 hurdle, marked by the high of October 11 th. Around there, the pair would meet the 200 EMA on the 4-hour chart, which may provide some additional support. If that area suddenly surrenders to the bears, the next possible support area to consider could be the 1.2655 level, marked by the low of October 16 th.
On the upside, if the aforementioned downside line breaks and the rate pushes above the 1.3012 barrier, marked by the highest point of October, this may open the door to the 1.3131 obstacle, a break of which could lift the pair to the 1.3177 level, marked by the high of May 3 rd.
AUD/JPY — Technical Outlook
Overall, AUD/JPY continues to trade above its short-term tentative upside support line taken from the low of August 25 th. But lately, we notice that the pair is struggling to overcome the 75.30 barrier, marked near the highs of October 31 stand November 5 th. This morning we are seeing a sharp rise, which is pushing the rate towards that barrier again. In order to get comfortable with higher levels, we need to wait for a break above the 75.30 zone first, hence why we will stay cautiously-bullish, at least for now.
If eventually we see a break of that 75.30 area, this move would confirm a forthcoming higher high and more buyers could take this opportunity to step in and drive the pair towards the 75.58 obstacle, a break of which may clear the path to further upside. This is when we will consider a test of the 76.15 hurdle, or the 76.28 level, marked by the highs of July 22 ndand July 1 strespectively.
Alternatively, in order to shift our attention towards slightly lower areas, a drop below the 74.55 hurdle is needed. This way, the rate would fall below today’s low and it may end up drifting to the 73.95 zone, marked near the lows of October 24 thand 25 th. AUD/JPY could stall around there, as it would also test the 200 EMA on the 4-hour chart. But if the bulls are notable to lift the rate back above the 74.55 barrier, this could result in another round of selling, possibly bringing the pair below the 73.95 area and aiming for the 73.38 level, marked by an intraday swing high of October 16 thand an intraday swing low of October 17 th.
As for the rest of today’s events
Today is a relatively quiet day in terms of economic data news. One set of data which is probably worthwhile mentioning is the US continuing and initial jobless claims. The first figure is believed to have fallen slightly from the previous 1690k to 1683k. The initial jobless claims figure is believed to have declined slightly as well, going from 218k to 215k. If these numbers come out as forecasted, this might support USD, but we doubt that the numbers could affect the greenback in a major way.
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Originally published at https://www.jfdbank.com on November 7, 2019.