GBP/JPY slides as stocks reverse earlier gains
James Chen January 20, 2016 2:22 AM
<p>Stocks reversed gains on Tuesday afternoon after having rallied in the morning. The morning rally was largely due to investors’ hopes for more central bank […]</p>
Stocks reversed gains on Tuesday afternoon after having rallied in the morning. The morning rally was largely due to investors’ hopes for more central bank stimulus after China posted its slowest economic growth in years.
As global stocks pared gains, the Japanese yen, which had been losing traction due to the morning’s tentative stability in equities, began to rise in the afternoon as a risk-off sentiment took hold once again.
Also on Tuesday, Bank of England (BoE) Governor Mark Carney commented in a speech that there was no set timetable for hiking interest rates in the UK. This further added to the existing doubt surrounding the BoE’s monetary policy stance, and helped prompt the already-besieged British pound to plunge even further.
This combination of a falling pound and a late-rising yen pushed GBP/JPY back down to re-approach the key 166.00 support level, its lowest level in nearly two years. Prior to hitting this level, the currency pair had already been falling precipitously since early December, breaking down below progressively lower key support levels, including 180.50, 176.00, 173.50, and most recently, the 169.00 level.
As global economic concerns and low inflation continue to weigh on the Bank of England’s long-awaited intentions of raising interest rates, and bouts of equity market volatility continue to direct asset flows back towards the yen, GBP/JPY could have significantly more room to fall. On any sustained breakdown below the noted 166.00 support level, the next major downside targets are at the key 164.00 and then 160.00 support levels.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.