GBP/JPY Breaks Inverse Head and Shoulders

For you technicians, hopefully you have caught the major break in GBP/JPY today.

source: eSignal

source: eSignal

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5 Comments

  1. I”m not a technical trader, but here’s my fundamentals view:

    “Mervyn King, governor of the Bank of England, on Tuesday warned the government against presenting a second fiscal stimulus in next month’s Budget with a dramatic intervention urging caution.” -Financial Times, Mar 24, 2009

    With a recent rise in budget deficit to 11%, King is showing remarkable restraint and caution, which is good- and rare. Both Switzerland and Japan have taken dramatic actions recently to devalue their currencies and stimulate the economy. While the Bank of England was one of the earliest adopters of quantitative easing, King is following Trichet’s rejection of US calls for ever more fiscal actions to boost the world-wide economy. It appears now, especially with today’s data showing an increase in CPI (3.2% y/y vs. an expected 2.6%) that there are sufficient factors delivering stimulus without further public spending. These include the 450 basis point cuts in interest rates, quantitative easing, a weaker Pound, and (at least until recently) falling commodity prices.

    With a dramatic decrease in sovereign credit default rates (the cost of insuring against debt default) from a high of over 165bps to 127 bps, an unemployment rate much less than that of the EZ or the US, and bottoming house prices (after a 40% fall!), the UK looks set to at least hold its own, especially against the $. While the UK may endure larger deficits than most other G20 countries, it doesn’t have the banking loss exposure of the EZ, nor the highly inflationary policies of the Obama administration. The Pound will hold its own and perhaps even appreciate against these two currencies.

    Against the JPY, it’s even more lopsided. Japan is in deep doodoo (to use a technical FX term). GDP fell at a 12% annualized rate in Q4/08, RISING CDS rates, an export economy dependent on car and electronic sales (both highly discretionary purchases), an aging population (and strong resistance to immigration), a total government indebtedness that exceeds all other G20 nations as % of GDP, and a total dependency on imported oil, the JPY will weaken for the foreseeable future.

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  2. Yes, it is probably time to get back to the pound. I ‘betrayed’ it at nice levels – 2CHF and 200 JPY last summer. In classic deflationary times like this all majors are good to store value. Untill some ‘extraordinary’ things come along.

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