The GBPJPY pair has been range-bound between 147.50 and 149.50 in May. The weakness seen in the construction sector and Brexit related issues have been keeping the Pound weaker. Likewise, the yen has turned weak due to an increase in risk appetite among investors, following a rally in the price of commodities. Therefore, neither the Pound nor the yen was able to take advantage of the weakness in other currencies. However, the economic data released yesterday signals the possibility of a bullish rally in the GBPJPY pair, which is trading at about 149.
The highly anticipated UK employment and wage growth data reported Tuesday have once again increased the expectations for a rate hike in August. The Office for National Statistics reported an unemployment rate of 4.2% at the end of March, unchanged from the previous month, and in line with analysts’ estimates.
Furthermore, the Office for National Statistics stated that there were 32.34 million people in work at the end of the first quarter of 2018, representing a sequential increase of 197,000. On a y-o-y basis, the number of people at work has increased by 396,000. The employment rate rose by 0.4 points to 75.6% in the recent quarter, the highest since 1971. Notably, most of the jobs created were full-time posts.
During the first quarter, total wages grew 2.6% from last year. It was slightly slower than the 2.8% wage growth recorded in the three months to February. However, regular pay, excluding bonuses, increased 2.9% compared to last year. This represents a 0.1% increase from the 2.8% annual growth recorded in the earlier month.
The ONS clarified that the real regular pay has gone up by 0.4% on a y-o-y basis, after taking inflation into account. The solid employment and wage data reported by the ONS has turned the Pound bullish. At the same time, the weak preliminary GDP data reported by the Cabinet Office have turned the yen further weak.
The Japanese economy contracted by 0.2% q-o-q in March, compared with a 0.4% growth reported in the previous quarter. Analysts expected the growth to remain flat in the recent quarter. On an annualized basis, the economy shrank 0.6% in the January-March quarter.
In addition to the poor economic data, outflows into foreign assets are also keeping the yen weak. To implement quantitative easing, the Bank of Japan continues to purchase a huge chunk of Japanese Government Bonds, which are traditionally considered to be safe investments. As the investors are unable to get enough bonds, they are looking for opportunities outside the country. All these factors mentioned above have turned the yen weak against the Pound.
The GBPJPY pair has found support at 147, as shown in the price chart below. The stochastic oscillator has started rising out of the bearish zone. Therefore, an uptrend can be anticipated soon. The next major resistance for the currency pair exists only at 153.
Based on this analysis, we are planning to execute two trades, one each in the Forex and binary market.
Using one of our Forex trading accounts, we may set up a long position in the GBPJPY pair neat 148.90. As a disciplined trader, we would also include a stop-loss order below 147.70. Once we establish the trade, we would look for a price of 150.80 to book profit.
The second trade we are planning to enter is a call option contract. For this trade, we will choose a date around May 25th for the expiry of the option. Furthermore, we may enter only if the GBPJPY pair trades near 148.90 in the Forex market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
