Pound Up on Boris Johnson’s Brexit Bill Concession

Pound Up on Boris Johnson’s Brexit Bill Concession
August 30, 2017

 
The GBPJPY pair had been on a decline over the past two weeks. The geopolitical tension between North Korea and the US increased the demand for safe haven assets such as gold, Swiss Franc and the Yen. At the same time, weak consumer spending in the UK and high inflation ensured a Pound sell off. However, in the past two trading sessions, the GBPJPY pair had gained about 200 pips to trade at 141.30 levels. We anticipate the uptrend to continue due to reasons given below.

Last week, during an interview, the UK’s foreign secretary Boris Johnson stated that the country had already paid billions of Pounds to the EU through the course of its membership. Johnson refused to comment on the demand for €100 billion by the EU for the divorce deal. However, he stated that the country would certainly meet its legal obligations. Analysts consider that as a slight change in stance and anticipate both parties to ultimately arrive at mutually acceptable terms. It can be remembered that the UK based lawyers had previously stated that the EU had no legal basis to demand any compensation other than the regular budget contributions until the date of exit. Currency strategists, a majority of them, are of the opinion that the Pound has already seen the bottom against the Euro, Yen, and the US dollar. The Pound, which remains undervalued and mostly driven lower due to bearish sentiment rather than fundamentals, could rise sharply in a case of mutual agreement between the EU and UK.

Last week, the Japanese Statistics Bureau reported a 0.5% increase in the consumer prices in July, compared with a 0.4% growth in the previous month, and in line with analysts’ estimates. However, it did not have any impact on the Yen. The sharp rise in the commodity prices is one of the reasons for the Yen to remain weak. Japan, which has few natural resources, imports almost all the raw materials required for its industries. The recent sharp rise in the price of commodities (iron ore, coking coal, and natural gas) severely increased the import bill. In May, the average import price of iron ore was ¥8,888 per ton, up 60% from ¥5,546 per ton last year. Likewise, the rally in the price of seaborne coking coal to $200 per ton is also having a negative impact on the trade balance of Japan.

Finally, commenting on North Korea, the US Pacific command spokesman and commander David Benham said the missiles do not pose a threat to North America or US military facilities in Guam. The statement has considerably diffused tension. That would also decrease the demand for the Yen. Thus, we anticipate the GBPJPY pair to rally in the days to come.

The GBPJPY pair has received support at 140.50. Furthermore, RSI, a momentum indicator has also crossed above the reading of 50. Thus, we can expect the bullishness to continue.

GBPJPY - Technical Analysis - 30th August 2017

A long position in the GBPJPY pair would be the most ideal trade as of now. We wish to enter near 141.50 and place a stop loss order below 140.30. The long position will be sold near 142.60.

To benefit from the uptrend, we are looking at the prospects of investing in a call option. To go ahead with the trade, we require the contract to remain active for one week. Additionally, the currency cross should be trading near 141.50.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading. 

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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