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USD/JPY And GBP/USD Ahead Of Next Week's Election, And Beyond

Published 02/06/2017, 11:14
Updated 09/07/2023, 11:32

USD/JPY

· The bid tone in the JPY has relented as the risk mood has been lifted through the performance seen on Wall Street. This is down to the healthy US data yesterday, which has come as a welcome relief amid ongoing political tensions across the globe.


· Looking to the US non-farm payrolls ahead, Thursday’s data run suggest good numbers today, and while some will point to the ADP survey showing a much higher than expected rise in private jobs (253k vs 185k), but we have seen the employment index in the ISM manufacturing PMIs showing a tighter correlation of late, and this improved from 52.0 to 53.5. The headline index was only marginally higher at 54.9, but we did see a notable rise in new orders.


· US Treasury yield in the mid curve only modestly higher, and this is down to market scepticism over Fed rate policy behind the Jun Fed hike still priced in. 5 yr is currently 1.76-1.77’s, with 10 yr 2.21-2.22 – very tight!


· This has been enough to push USD/JPY into the mid 111.00’s, but we expect it will be tough order to push past 112.00 in the interim, with decent selling seen either side of this and even stronger conviction to sell once we get towards 113.00.

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GBP/USD

· For the GBP, next week’s general election is the major consideration – for Cable at least. Despite media focus on Labour closing the gap in the election polls, the majority is still skewed towards a Tory victory, and this is what is driving some of the impulsive bidding here, notably into 1.2770-50.


· This sets the key level to watch on a USD positive number later today, but if breached, 1.2630-40 is where we expect stronger demand to emerge once again.


· Looking beyond the election result, EUR/GBP reflects a greater focus on what lies ahead in terms of the Brexit negotiations, which as few can argue against, looks set to be a tense affair.


· The size of the Brexit bill alone points to much higher levels, though this is a consideration further down the line, and for now, we have come up against some strong resistance at 0.8750, with a key area at 0.8800-60 now well established.

TradingView.com

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