GBPJPY Swing trade that you can take now + Fundamental drivers
Hello Traders!
We approached a key level and managed to break an hourly trend line that's enough for a technical entry also having a strong upside bias for the pair.
Entry at market or buy stop order at the break is valid.
Manage risk below the last significant support area.
Fundamental Drivers:
Great British Pound (GBP)
Fundamental Bias: Weak Bullish
1. The Monetary Policy outlook for the BOE
The BoE took a hit to their credibility with their November policy decision when the bank voted 7-2 to keep rates on hold and also had a very clear U-turn among some of the recent hawkish comments from the likes of Bailey and Pill. Going into the meeting markets had fully priced a
15bsp hike in 4Q21, and even though analysts and economists were divided on whether that hike would take place in Nov or Dec the bank’s statement and press conference has now seen market expectations for a hike pushed back to Feb 2022. This came from the bank’s dovish tilt
regarding growth, inflation as well as a change or tone which said that hikes would be appropriate in the coming months if the labour data
comes in inline with the bank’s projections. We were anticipating a violent repricing on med-term rate expectations for the past few weeks now, stressing that rates markets were too aggressively priced, but the U-turn from the bank regarding the near-term was surprising and means incoming labour market data will be key in gauging when lift off will occur. When asked about their obvious U-turn, the bank pushed back and
said they won’t endorse market rate pricing, but external member Saunders did just that in early Oct. Overall, the bank delivered a dovish tone, and took a big hit to their credibility, which means markets will be a lot more careful with jumping the gun on their forward guidance going forward. A key reason why we have not changed our outlook for the GBP to bearish after the Nov BoE meeting is because the forecasts for
both growth and inflation were conditioned on an implied bank rate of 1% by end 2022, which seems highly unlikely. Thus, after this week’s repricing, if rates price in less than 1% by 2022 then the conditioned path for growth & inflation should be higher again all else being equal.
2. The country's economic developments
The successful vaccination program and subsequent reopening of the UK economy was a big positive for Sterling from the start of the year, but with a lot of those positives already in the price and some expectation of stalling growth, the upward momentum will get tougher in the near-
term. Also, alongside the BoE’s dovish tilt incoming economic data will be crucially important for markets to gauge the rate path.
3. Political Developments
Even though a Brexit deal was reached last year, some issues like the Northern Ireland protocol remains, and with neither side willing to budge it seems like these issues are here to stay for now. There has been heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, these are just threats, but any actual escalation could increase the odds of seeing so risk premium built into Sterling. Also keep the fishing challenges with France in mind as well.
4. CFTC Analysis
Latest CFTC data showed a positioning change of +94 with a net non-commercial position of +15047. Keep in mind the CFTC data released on Friday was only updated with positioning data until Tuesday 3 Nov, which means the big flush lower in Sterling after the BoE meeting will only
be reflected in next week’s data. Thus, we would anticipate seeing a sizeable increase in net-short positioning following the Pound’s reaction after the meeting. With the week light on the calendar front, markets will turn attention to incoming comments from Governor Bailey (sigh).
Apart from that we’ll be keeping a close eye on key technical levels to determine whether downside momentum could be stalling out.
Have a great weekend!
Regards,
Vitez
We approached a key level and managed to break an hourly trend line that's enough for a technical entry also having a strong upside bias for the pair.
Entry at market or buy stop order at the break is valid.
Manage risk below the last significant support area.
Fundamental Drivers:
Great British Pound (GBP)
Fundamental Bias: Weak Bullish
1. The Monetary Policy outlook for the BOE
The BoE took a hit to their credibility with their November policy decision when the bank voted 7-2 to keep rates on hold and also had a very clear U-turn among some of the recent hawkish comments from the likes of Bailey and Pill. Going into the meeting markets had fully priced a
15bsp hike in 4Q21, and even though analysts and economists were divided on whether that hike would take place in Nov or Dec the bank’s statement and press conference has now seen market expectations for a hike pushed back to Feb 2022. This came from the bank’s dovish tilt
regarding growth, inflation as well as a change or tone which said that hikes would be appropriate in the coming months if the labour data
comes in inline with the bank’s projections. We were anticipating a violent repricing on med-term rate expectations for the past few weeks now, stressing that rates markets were too aggressively priced, but the U-turn from the bank regarding the near-term was surprising and means incoming labour market data will be key in gauging when lift off will occur. When asked about their obvious U-turn, the bank pushed back and
said they won’t endorse market rate pricing, but external member Saunders did just that in early Oct. Overall, the bank delivered a dovish tone, and took a big hit to their credibility, which means markets will be a lot more careful with jumping the gun on their forward guidance going forward. A key reason why we have not changed our outlook for the GBP to bearish after the Nov BoE meeting is because the forecasts for
both growth and inflation were conditioned on an implied bank rate of 1% by end 2022, which seems highly unlikely. Thus, after this week’s repricing, if rates price in less than 1% by 2022 then the conditioned path for growth & inflation should be higher again all else being equal.
2. The country's economic developments
The successful vaccination program and subsequent reopening of the UK economy was a big positive for Sterling from the start of the year, but with a lot of those positives already in the price and some expectation of stalling growth, the upward momentum will get tougher in the near-
term. Also, alongside the BoE’s dovish tilt incoming economic data will be crucially important for markets to gauge the rate path.
3. Political Developments
Even though a Brexit deal was reached last year, some issues like the Northern Ireland protocol remains, and with neither side willing to budge it seems like these issues are here to stay for now. There has been heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, these are just threats, but any actual escalation could increase the odds of seeing so risk premium built into Sterling. Also keep the fishing challenges with France in mind as well.
4. CFTC Analysis
Latest CFTC data showed a positioning change of +94 with a net non-commercial position of +15047. Keep in mind the CFTC data released on Friday was only updated with positioning data until Tuesday 3 Nov, which means the big flush lower in Sterling after the BoE meeting will only
be reflected in next week’s data. Thus, we would anticipate seeing a sizeable increase in net-short positioning following the Pound’s reaction after the meeting. With the week light on the calendar front, markets will turn attention to incoming comments from Governor Bailey (sigh).
Apart from that we’ll be keeping a close eye on key technical levels to determine whether downside momentum could be stalling out.
Have a great weekend!
Regards,
Vitez