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Pound and the surprising PMI climb

Market Analysis

GBPJPY, H1

The dollar has remained bid amid a combo of a rising Wall Street and rising Treasury yields. USDJPY’s ascent has continued with the pair logging fresh two-week highs above 114.25. The pair is up 2.3% from the lows seen ahead of Trump’s SOTU address on Tuesday and NY Fed’s Dudley’s hawkish turn, which ignited a dollar rally. EURJPY has also clocked a new two-week high, though data showing the biggest rate of gain in German import prices in over five years saw the euro lift off its lows just ahead of the London interbank open. Yen crosses have remained mostly well bid, reflecting continued underperformance of the Japanese currency in the generally firmer dollar environment as markets discount a decent probability (70-80% in the Fed funds futures market) of the Fed hiking rates by 25 bp at its March 15th-16th FOMC.

GBPJPY on the other hand, fell on the UK construction PMI news for February, after breaking the significant 200 EMA at 140.48 in an hourly chart. UK February construction PMI unexpectedly rose to 52.5 after 52.2 in January.The median forecast had been for a slightly decline to a 52.0 reading. The data helps offset the sub-forecast reading of the manufacturing PMI, while both still show that the respective sectors continue to expand. The services PMI is up tomorrow, where expect a moderation to a 54.0 headline for the dominant sector in the UK after 54.5 in January. An in-line outcome would leave the composite PMI painting a picture of continued growth in the UK economy. Markit, the compiler of the PMI surveys, last month tentatively estimated that the economy was on course for 0.5% q/q growth in Q1.

Furthermore, from a technical analysis part, the reach of such a significant level such as 200 EMA could be consider as a reversal signal, if the last week’s GBPJPY performance observed in a 4-hour chart. In the same higher timeframe, the pair broke 10 period EMA and 30 period MA in the last candle. It is currently trade south below 38.2 Fibonacci level, with RSI to be neutral at 50.63 and MACD to remain negative. On the daily chart, Parabolic SAR remain negative since Monday’s turn. Therefore, low timeframes might suggest additional decline.

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Andria Pichidi

Market Analyst

HotForex

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