Technically, the currency pair GBP / JPY needs to overcome the mark of 144.10. In this case, the pair on the daily chart will exceed the average line of the Bollinger Bands indicator, as well as the Kijun-sen and Tenkan-sen lines, while the price will still be under pressure from the Kumo cloud. This configuration indicates that the indicator of Ichimoku will form the signal "Golden Cross", indicating the priority of buying a pair. In this case, the next target of the northern movement will be 145.20 (the upper line of the Bollinger Bands indicator on the daily chart).
As was to be expected, optimistic rumors on Brexit provided only temporary support to the pound. By the end of yesterday, there was a refutation of the German side. Germany has not confirmed the information that their country is making concessions to Britain in the "divorce proceedings", fully trusting the EU chief negotiator Michel Barnier.
It is noteworthy that after such news, the pound, although it lost some of its positions won, but still closed the trading day paired with the dollar in positive territory, within the framework of the 29th figure. According to some experts, this unusual behavior of the currency is explained by the common hopes of traders for progress in the negotiation process. Simply put, the market has decided that smoke without fire does not happen, especially since such signals are coming in quite often recently.
However, it is risky to open long positions for the pair GBP / USD now. Yesterday's northern impulse has clearly faded away, whereas the dollar may receive additional support tomorrow after the release of data on the US labor market. And the situation with the pound / yen cross-pair is more predictable, if in the context of Brexit, one can talk about predictability at all. And, nevertheless, if we look at the weekly GBP / JPY chart, then we see the northern trend, which starts in early August. Despite all the contradictory nature of the fundamental background, the pound still dominates the cross. In just a month, the pair has grown by 400 points.
The fact is that the prospects for the pound are completely tied to the prospects of Brexit, negotiations on which are shaky and wolfish, but are moving forward. And in this case, at stake is not only the relationship between London and Brussels after March 2019, but also the future interest rate. The head of the Bank of England, Mark Carney, at the parliamentary hearings again linked the issue of Brexit with further steps to tighten monetary policy. Experts believe that the next rate increase can be expected already next spring, provided that Britain leaves the EU "civilized", with the conclusion of the deal.
Moreover, the regulator can even accelerate the rate of increase taking into account the continuing increase in inflation. The depreciating pound and rising oil create favorable conditions for the positive dynamics of inflation indicators. Let me remind you that inflation remains above the target level of the English regulator for 1.5 years. This circumstance is of concern to Mark Carney, who even compared the increased price pressure with the possible negative consequences of the chaotic Brexit.
According to the latest published data, consumer prices in Britain increased by 2.5% year-on-year, while core inflation (CPI Core) remained at the same level - 1.9%. This dynamic, paired with the strengthening of the labor market, gives every reason to expect the English regulator to pursue a tough policy. But the Bank of England has its hands tied with Brexit. The central bank cannot take such a risk, as long as there is at least 1% of the probability of implementing a rigorous "divorce" scenario with the EU.
Thus, the conclusion of a deal between London and Brussels will give a green light to the process of tightening monetary policy by the British regulator. It is possible to assess the chances for a soft Brexit in different ways, but these chances are there, and they are quite large considering the latest signals in the information field. While the Japanese currency has almost no chance of raising rates by the Bank of Japan, at least in the foreseeable future.
The latest published data confirmed the weakness of price pressure in the country. The key indicator of inflation, which is monitored by the Central Bank of Japan, in July grew by only 0.8%, remaining at the June level. Other inflationary indicators also came out worse than forecasted values. In other words, Japanese inflation still remains below the target of two percent, despite many years of monetary stimulus.
All this suggests that the Bank of Japan, firstly, certainly will not consider the issue of monetary policy until the end of 2019 (at least), and, secondly, it can further relax the monetary conditions. Indirectly, this is confirmed by the latest decisions of the Japanese regulator. So, in July, the Bank of Japan expanded the range, or rather, the limits of long-term interest rates. As a result of this correction, the controller shifted not only the "ceiling", but also the lower limit - to -0.2%. In other words, Kuroda prepared the ground for a possible lowering of the interest rate further into the negative area. According to analysts, the central bank of Japan will resort to such a step if inflation continues to show negative dynamics, and the country's economy will slow again after growth in the second quarter.
Thus, the pound has a common advantage over the yen in the context of possible settlement of monetary conditions. At the same time, the British is vulnerable because of the unstable news flow regarding Brexit's prospects. But the general trend speaks in favor of GBP / JPY growth, especially if the rumors surrounding the conclusion of a possible deal will intensify. Trading this cross, it is especially important not to forget about stop-loss, as the British currency reacts too sharply to any more or less significant news about the dialogue between London and Brussels.
