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- GBP/JPY establishes bullish peak and trough sequence

- Rally expected on break of highs

- Yen to be driven by risk trends and BOJ meeting

The Pound-to-Yen exchange rate is trading at around 134.05 at the time of writing, after rising 2.82% in the week before. Studies of the charts suggest the pair is in an established new uptrend which is likely to extend.

The 4 hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair steadily rising in a new uptrend since basing at the September 3 lows.

The pair is currently breaking below the trendline for the move up and if it is successful it will probably signal a pull-back down to a support zone in the 1.32-33s.

The uptrend remains intact, however, so the pair will probably resume rising after basing at the support zone. A break above the 132.20 highs would probably result in a continuation higher to an initial target at 136.25.

The daily chart shows the double bottom reversal price pattern which formed at the early September lows and the subsequent reversal higher.

The pair is in a short-term uptrend and according to market adage ‘the trend is your friend’ it will probably continue higher.

The chart includes the next bullish target at the 137.75 July 1 high subject to a break above the 132.20 highs.

The daily chart is used to give an indication of the outlook for the medium-term, defined as the next week to a month ahead.

The weekly chart shows the pair having formed some relatively long, green, up weeks which suggest there is a bias to expecting the uptrend to extend higher.

The chart shows the longer-term target for the upswing, which may potentially be at the 140.000 level, just under the 50-week moving average (MA).

The weekly chart is used to give us an indication of the outlook for the long-term, defined as the next few months.

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The Japanese Yen: What to Watch

The attack is said to have knocked out 50% of Saudi Arabia’s oil production which itself accounts for 10% of world production. The price of crude oil spiked by as much as 20% following the news but global stocks and riskier assets fell.

As a consequence the Yen gained due to increased safe-haven flows and it may continue since the damage appears to be longer-term.

“Furthermore, reports suggest less optimism that Saudi Arabia can rapidly recover lost oil production and it will likely take weeks or months before the majority of output is restored. The combination of a longer than expected return to full Saudi oil production and the lingering threat of an escalation of Middle Eastern tensions, with possible US retaliatory action, is likely to see a sustained period of higher oil prices,” says Jason Wong, analyst at BNZ, a New Zealand-based global financial services bank.

The other main event for the Yen is the meeting of the BOJ on Thursday at 4.00 BST at which there is a risk, albeit small, that the Bank may expand stimulus.

At its July meeting, the BOJ came close to expanding stimulus but in the end, decided to hold off. Nevertheless, it expressed a commitment to doing so “without hesitation” if a global slowdown jeopardised the country’s economic recovery.

BOJ Governor Haruhiko Kuroda said the central bank would act pre-emptively against risks to the economy, as protectionist policies and trade tensions were delaying an expected rebound in global growth.

Trade tensions peaked in August but since then have eased suggesting less incentive for the BOJ to cut rates or increase quantitative easing (QE) because of global trade tensions.

BOJ governor Kuroda laid the blame for the slowdown squarely at the feet of trade tensions and the impact they were having on global supply chains and manufacturing.

“I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening,” said Kuroda to a news conference. “But overseas are heightening. If this is prolonged, that could increase risks for Japan and threaten the economy’s momentum to hit our price goal. If this happens, we will ease policy without hesitation.”

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.

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