By IFCMarkets

British Pound may strengthen against Japanese yen

The labor market report on Wednesday showed UK unemployment fell and wages grew in July, supporting the prospect of rate hike early next year. Meanwhile exports fell in Japan, increasing the likelihood of monetary stimulus expansion by the Bank of Japan. Will the British Pound strengthen against the Japanese yen following the reports?

British unemployment data on September 16 showed unemployment fell unexpectedly to 5.5% in July, below the 5.6% expected rate as the economy added 42 thousand new jobs. At the same time average earnings in July rose by 2.9%, above the expected 2.5%. Growing earnings point to a building momentum for future rise in inflation toward 2% medium term target, which is what the Bank of England policymakers have indicated as a necessary condition for a rate hike early next year. Recent data on Japanese economy showed Japan’s exports slowed for a second straight month in August due to slowing Chinese economy and global growth. This increases the pressure on Bank of Japan to expand its monetary stimulus program. Further strengthening of UK economy will provide additional support for British Pound against the Japanese yen which has been weakening since the start of the monetary easing policy by the Bank of Japan.

The GBP/JPY has been trading with an upward bias on the daily timeframe until the unexpected devaluation of yuan on August 11 by China’s central bank precipitated the slump in global markets in the last week of August, resulting in increased haven demand for yen and fall in the pair. The price has retraced after the fall and has closed above the resistance line, forming a bullish engulfing pattern. The Parabolic indicator gives a buy signal. The RSI-Bars oscillator is rising. We believe the bullish momentum will be continue after the pair closes above the last fractal high at 187.312. A pending order to buy can be placed above that level. The stop loss can be placed below the last fractal low at 184.197. After placing the order, the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not taken into account.

Market Analysis provided by IFCMarkets