Pound returns back to square 1…

The pound weakened yesterday and relented any gains it had made against the USD, due to Boris Johnson’s electoral win. The hard rhetoric about the post Brexit trade deal with the EU and the hard deadline to exit the EU with or without a deal in place by December 2020, returned the spectre of a chaotic exit of the UK from the EU, weakening the pound further. EU officials seem to state that the timetable becomes “rigid” according to media, which could limit the scope of any trade deal agreed. Analysts tend to note that the recent developments served a wakeup call after the recent euphoria for pound traders. It was characteristic that even the more positive than expected UK employment data released yesterday failed to provide any substantial support for the GBP. We could see the pound maintain the bearish tendencies should further negative headlines arise, yet UK’s inflation rates released today, could also move the pound. Cable continued its drop yesterday and broke the 1.3170 (R1) support line (now turned to resistance), aiming for the 1.3015 (S1) support level. We could see the pair maintain its current bearish tendencies, yet there were some early signs of stabilisation during today’s Asian session. Should the bears continue to have the upper hand, we could see the pair breaking the 1.3015 (S1) support line and aim for the 1.2820 (S2) support level. Should the bulls take over, we could see the pair breaking the 1.3170 (R1) resistance line and aim for the 1.3340 (R2) resistance hurdle once again.

…while JPY prepares for BoJ’s interest rate decision…

Tomorrow during the Asian session (around ≈03:00 GMT) BoJ is to release its interest rate decision and is expected to remain on hold at -0.10%. Currently JPY OIS imply a probability of 86.48% for the bank to remain on hold, despite the intense dovish signals of the bank’s previous meeting. Lowered international risks deriving from the UK elections and a phase 1 deal in the US-Sino trade front, as well as the announced fiscal stimulus by Abe’s Government, could be providing for some breathing space for the bank. On the flip side weak domestic demand, slowing factory output, low business sentiment and export data remaining in the negatives may be calling for stimulus. It should be noted that BoJ Governor had repeatedly voiced readiness for further monetary stimulus, yet the bank may prefer to maintain a wait and see position at the current stage, as BoJ Deputy Governor Amamiya implied in a recent statement. Should the accompanying statement underscore the bank’s readiness though, with a tone tilted to the dovish side we could see the JPY weakening. USD/JPY maintained a largely sideways motion yesterday and during today’s Asian session, remaining near, yet steadily below the 109.70 (R1) resistance line. We could see the pair maintaining its current direction, yet BoJ’s interest rate decision could prove to be a source of volatility for the pair. Should USD/JPY come under the selling interest of the market, we could see it breaking the 109.00 (S1) support line and aim for lower grounds. Should the pair’s long positions be favored by the market we could see USD/JPY breaking the 109.70 (R1) resistance line and aim for the 110.50 (R2) resistance level.

Other economic highlights today and early tomorrow

Today, during the European session we get from Germany the producer prices growth rate for November and the Ifo business climate indicator for December, UK’s inflation rates for November and Eurozone’s final HICP rate for November. Also, late in the European session we get from the Czech Republic CNB’s interest rate decision. In the American session, we get Canada’s inflation rates for November, the US EIA crude oil inventories figure for past week and just before the Asian session starts New Zealand’s GDP growth rate for Q3. During tomorrow’s Asian session, the main release is expected to be Australia’s employment data for November. As for speakers please note that ECB President Christine Lagarde, Fed’s Brainard, ECB’s Coeure and Chicago Fed President Charles Evans speak.

USD/JPY 4 Hour