This article was submitted by Michael Stark, an analyst at Exness.
Markets started this week slowly with the holiday in the USA, but there was some negativity in Asia as the People’s Bank of China cut its loan prime rates to attempt to stimulate growth. This preview of weekly data looks at GBPJPY and USDCHF ahead of important releases from the UK in the next few days.
Last week was highly active in monetary policy, with the ECB hiking another quarter of a percent, bringing the deposit facility rate to 3.5% and key interest rate to 4%. The Fed left the funds rate on hold but hinted at more hikes to come; the majority of traders expects a hike to 5.25-5.5% next month and no cut until the first quarter of next year at the earliest.
This week the focus in monetary policy is on the Bank of England and the Swiss National Bank, both of which are expected to call for single hikes on Thursday. The Norges Bank is also likely to hike to 3.5% and the consensus for the Central Bank of the Republic of Turkey is a dramatic 11.5% hike to 20%, attempting to drive further improvement on cripplingly high inflation.
British inflation on Wednesday is one of the most important regular releases this week. Although this is very unlikely to affect the BoE’s decision the next day, it might inform sentiment among the Monetary Policy Committee and influence their responses in the press conference positively or negatively. Traders are also looking ahead to Congress’ semiannual monetary policy report on Thursday which features Jerome Powell as the main witness.
Pound-yen, daily
The pound has continued its strong gains against the yen in recent weeks as the divergence in monetary policy is likely to continue to increase. On the whole, the picture for the British economy looks better than it did this time last month as earnings continued to grow in last week’s job report and monthly GDP was positive. With British inflation being the highest among OECD/G20 countries apart from Argentina and Turkey it’s likely that the Bank of England will need to continue tightening for longer than the Fed and ECB.
Conversely, the chart would suggest a correction sooner or later, with overbought conditions having dominated in recent weeks. Friday’s peak above ¥182 was the highest price for pound-yen in more than seven years, even before the Brexit referendum, and with all three saturation signals clearly visible it would traditionally be a big risk to buy in here. Assuming the price does retrace lower, the uptrend might resume from the 38.2% area of the weekly Fibonacci fan around ¥173, the confluence with the 50 SMA from Bands.
That very much depends on British inflation and the tone of the BoE’s meeting on Thursday. Annual core inflation is expected to remain at 6.8% and non-core decline slightly to 8.4%, but the actual releases will almost certainly diverge from the estimates at least slightly. If slightly higher, the pound might continue upward in the short term. Japanese inflation is possibly more important than usual this week because if the consensus of a 0.3% drop is correct, the yen might continue losses with tightening by the BoJ looking less likely.
Key data this week
Bold indicates the most important releases for this symbol.
Last week the Fed held rates but hinted at two more hikes this year although participants are currently pricing in only one. After the SNB’s double hike in March, another single hike is likely on Thursday as the central bank seems to be keen to make further progress on inflation and increase the costs of borrowing. Both the USA and Switzerland have seen the rate of inflation decrease significantly this year, but the peak in Switzerland at 3.5% last July was much lower than in the USA.
The chart might suggest a bounce for the dollar given that there hasn’t been another attempt yet to test the two-year low around 88.3 centimes. Demand to push below 0.89 seems to be quite limited and ATR has been dropping for several days. It’s likely to be a challenge to push above the 23.6% weekly Fibonacci retracement so it might be important to monitor the sizes of candles around the value area between the 50 and 100 SMAs.
However, the scope for gains this week depends on the SNB and Jerome Powell. If the news in the next few days is generally in line with the expectations, there might be another test of recent highs slightly below 91. Equally, dollar-franc is now quite a high carry symbol again – the difference in rates will be at least 3.25-3.5% even by the end of the week – so longer-term buying activity might pick up after the dust has settled from the news.
Key data this week
Bold indicates the most important releases for this symbol.
Thursday 22 June
from 7:30 GMT: statement and press conference of the Swiss National Bank
Experienced writer and journalist, working in the global online trading sector, Steffy is the Editor of LeapRate. She has previous experience as a copywriter and has been with the company since January 2020. Steffy has a British and American Studies degree from St. Kliment Ochridski University in Sofia.
