BoE’s interest rate decision in focus

The BoE’s interest rate decision is to be released in today’s late European session. The majority of market participants currently are anticipating the bank to cut rates by 25 basis points, with GBP OIS currently implying a 92.2% probability for such a scenario to materialize. In turn, we would turn our attention to the bank’s accompanying statement in which should the BoE reference measures to support economic growth, it may be perceived as dovish in nature which could weigh on the pound. On the other hand, should the BoE imply that they may withhold from further cutting rates in the near future, it may aid the GBP.

Cable continued rising yesterday reaching the 1.2550 (R1) resistance line. We tend to maintain our bias for the sideways motion to continue for the time being, given also that the RSI indicator failed to substantially rise above the reading of 50, implying a relatively indecisive market for now. For the adoption of a bullish outlook we would require the pair to clearly break the 1.2550 (R1) resistance line and start aiming for the 1.2805 (R2) resistance level. On the flip side, should the bears take over, we may see GBP/USD, relenting the losses of the past three days and breaking the 1.2250 (S1) support line and start aiming for the 1.2100 (S2) support barrier, which provided support on the 13^th of January.   

Furthermore, in the FX market, we note the strengthening of JPY across the board, yesterday and during today’s Asian session. Comments by BoJ board member Naoki Tamura, stating that BoJ must raise rates to at least 1%, a statement deemed as hawkish as market consensus currently, is for the bank to raise rates to 0.75% by the end of the year, as per JPY OIS. Overall, we see the case for BoJ’s intentions to be possibly the key factor behind JPY’s direction and if the market’s expectations for the bank to hike rates at a faster pace than initially expected, are enhanced, we may see JPY getting further support over the coming days.

Also, the weakening of the USD against its counterparts continued yesterday, as the market’s worries for a possible trade war are easing while the possible effects of the tariffs on US imports from China are slowly being priced in. On a macroeconomic level, the rise of the US ADP national employment figure for January excited traders, yet the unexpected drop of the ISM non-manufacturing PMI figure for the same month may have clipped any gains.

On a technical level, USD/JPY extended decisively its downward motion yesterday, aiming for the 151.35 (S1) support line. Also the RSI indicator dropped nearing the reading of 30 and implying an intensification of the bearish market sentiment for the pair. Hence we tend to maintain our bearish outlook for the pair. Should the bears maintain control over the pair as expected we may see it breaching the 151.35 (S1) support line, with the next target for the bears being the 148.65 (S2) support level. In a bullish scenario, which we view as remote currently, we may see USD/JPY reversing direction, breaking the downward trendline guiding the pair since the 10^th of January clearly, signaling an interruption of the downward motion and continue to break the 154.65 (R1) resistance line and start aiming, if not reaching the 158.45 (R2) resistance base.

Other highlights for the day:

In today’s European session, we get Sweden’s preliminary CPI Rates for January, while Riksbank’s Governor Thedeen speaks and we also get the Czech Republic’s January preliminary CPI rates, as well as UK’s and Euro Zone’s construction PMI figures for the same month. In the early American session, we note the release of the weekly US initial jobless claims figure and from the Czech Republic CNB’s interest rate decision, while later on Fed Board Governor Waller speaks. In tomorrow’s Asian session, we note from Japan the release of December’s All Household Spending growth rate.        

GBP/USD Daily Chart

• Support: 1.2250 (S1), 1.2100 (S2), 1.1920 (S3)
• Resistance: 1.2550 (R1), 1.2805 (R2), 1.3045 (R3)

USD/JPY Daily Chart

• Support: 151.35 (S1), 148.65 (S2), 145.95 (S3)
• Resistance: 154.65 (R1), 158.45 (R2), 161.90 (R3)

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