GBPJPY Analysis (Nov, 2021) Hawkish Rates Coming
The UK has had a slow start to recovery over the pandemic and now that the government furlough is coming to an end there was a risk in consumer confidence due to potential unemployment rising. New data is suggesting the opposite with a new boost of 160,000 payrolled employees.
However, with the growing stimulus and now growing employment there's an inherent risk of inflation within the UK forecast of growing upwards of 5% with a target of 2% we're already double. The rising inflation is normally controlled using the monetary lever of interest rates, since interest rates are at record lows the Bank of England may opt to increase rates to stabilise inflation which may cause an appreciation of the GBP.
Logikfx Technology Summary
What we've found across the fundamental data is a significant uptrend on GBP UK data and a potentially bearish JPY outlook.
The economic indicators listed below are all showing bullish signs which suggests GBPJPY may be looking at an upwards trend moving in 2022.
We'll be taking a deeper look into these economic indicators to investigate whether GBPJPY will continue to uptrend or not.
Macro currency strength meter
The macro currency strength meter has shown interesting trends over the past 7 weeks GBP has followed a consistent uptrend which suggests an economic recovery over this quarter.
However, JPY has maintained a significantly bearish currency strength which suggests investors are risk on and moving money from the JPY to riskier assets.
This divergence in currency strength suggests we should be focusing on the bullish potential of GBPJPY.
The GDP differentiations are also showing bullish signs which the IMF have forecast for 2022. It shows the UK is sent to grow by 5% in comparison to Japan's 3%.
This outpace in growth shows how investors would rather be bullish on GBP as they're expected to grow faster than Japan.
Trade analysis (Imports/Exports)
Gold is one of the main commodities analysed and as you can see the correlation is a strong negative correlation. Why could that be?
Gold is classed as one of the safe haven assets which goes in line with JPY being a safe haven currency strongly cementing the relationship between the two prices.
Gold prices have been rising however which suggests the opposite for GBPJPY meaning there may be a downward correction.
Currently gold prices go against the fundamental bias of our technology summary so we'll see if the other commodities or companies suggest otherwise.
Brent oil is another indicator considered during the analysis due to the UK's exporting of oil from the north sea.
What we saw over 10 years BRENT has had a positive correlation against GBPJPY and the recent dip in BRENT prices suggests GBPYJPY may follow...
Overall we've seen all commodity and company analysis suggest a bearish movement which means the relative analysis on trade goes against our bullish idea.
This is something to keep an eye on due to potentially conflicting fundamental data.
Interest rate differentials
The interest rates are going to be an interesting indicator to keep an eye on due to current inflation rates this is likely to rise.
What we have currently is UK maintaining low interest rates but Japan holding negative rates suggesting the GBP is more attractive to investors.
The Bank of England has also hinted a potential interest rate hike moving into 2022 which would further appreciate the GBP.
Stock Market Analysis
The FTSE100 in JPY has shown a bullish recovery over the past 6 months suggesting the UK population is looking wealthier than Japan.
These new market highs are bullish for GBPJPY as you can see the stock market priced in JPY has a strong positive correlation.
If the FTSE100(JPY) continues to climb wXe can also expect GBPJPY to follow.
Hedge fund positioning
The COT report has shown the open interest of hedge funds diverge... Buying GBP and selling JPY.
Overall, this shows our idea is with the market sentiment and not against it trading with big money flows.
Price Trends
Overall the market price for GBPJPY has been in an upward trend for the past few months.
The recent correction suggests sellers pushed the prices down but buyers are now willing to buy at a discount.
What I would be searching for in this region is any bullish technical signs to catch onto the potential trend.
