GBPJPY Losses Look Inevitable as BoE Talks Negative Rates

Summary:

The GBPJPY is mixed on the week after reversing yesterday's losses but the weekly picture highlights the risk of further losses in the pair.

The GBPJPY is mixed on the week after reversing yesterday’s losses but the weekly picture highlights the risk of further losses in the pair. The pound has been under pressure with the return of Brexit talks and yesterday the Bank of England said that they had discussed negative interest rates, which could add weight to the price going forward.

It’s only a month since Governor Andrew Bailey stated that there were no plans to follow much of Europe and Japan to implement negative rates. The outlook for economic stability has changed in that time, however, with the increasing hostility in Brexit talks. Boris Johnson threatened to pull out of talks with no agreement in October, before his controversial Internal Market Bill was passed by politicians. Brussels and London continue to throw out accusations and blame over the failing talks.

Traders will adopt a “wait-and-see” approach as they employ optimism over the chance for a resolution and this will slow any correction in the pound. Switzerland, Denmark, and Japan are countries currently employing negative rates, while around 20 EU countries are stuck at zero. The U.K. currently sits at a token 0.1% but the picture could change rapidly if growth slows in the global economy.

One threat to the growth picture is in the continued rise of virus cases in Europe. France has seen a rise in cases of late, while the U.K. also gets nervous about the flu season. Cabinet Member Matt Hancock has talked of another U.K. lockdown being a, “line of last defence,” but areas of the North are already shut.

GBPJPY Technical Outlook

The GBPJPY has had a mixed week with a doji bar highlighting traders’ indecision over the next path. The real technical damage was done last week with a strong move through the uptrend support line of a wedge and a retest is possible into the zone marked before further losses. A close above the trendline would be a possible return to gains but the likelihood is a retest of the lower levels with a target being 131.00 first.