Theresa May Vows to be More Flexible, BoJ Decides on Policy

Risk Appetite Eases, GBP Gains as May Promises Flexibility

The dollar traded higher against most of the other G10 currencies yesterday. It slightly underperformed against JPY and GBP, while it traded virtually unchanged against NZD and SEK. The main losers were AUD, CAD and CHF.

GBP/USD — Technical Outlook

GBP/USD continues to trade above its steep upside support line drawn from the low of the 2ndof January, which still puts a positive spin on the short-term outlook. But because the pair is trading a bit further away from that line, before another push higher, GBP/USD could retrace back down to test that short-term upside support line. That said, given that on a four-hour timeframe the pair has created a lower high, we will take somewhat a cautiously-bullish approach for now.

BoJ Takes the Central Bank Torch, New Zealand CPIs in Focus as Well

Tonight, during the Asian morning Wednesday, the BoJ decides on interest rates for the first time in 2019. At their last meeting for 2018, Japanese policymakers kept their ultra-loose policy unchanged as was broadly anticipated, and despite the disappointing GDP data for Q3, the Bank reiterated that Japan’s economy is expanding moderately and that it will continue to do so.

NZD/JPY — Technical Outlook

NZD/JPY is now retracing slightly back down, but one should remain cautious, as the pair still remains above its short-term upside support line taken from the low of the 8thof January. If that line continues to provide strong support for the rate, we may see the bulls coming back into the action and pushing the rate back up again. That said, later on, the upside could be limited, due to the short-term tentative downside resistance line drawn from the highest point of December 2018.

As for Today’s Events

During the European day, the UK employment data for November is set to be released. The unemployment is forecast to have held steady at 4.1%, while the average weekly earnings, both including and excluding bonuses, are anticipated to have grown +3.3% yoy, the same pace as in October, and the fastest in a decade. According to the IHS Markit/KPMG & REC Report on Jobs for the month, wages for temporary staff increased at the fastest pace since July 2007, while starting salaries for permanent placements rose at one of the sharpest rates seen in the past 3.5 years. In our view, this supports the case for another set of strong wage growth rates.



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