Bullish GBP scenarios:
1) The govt. formalizes a lengthy transitional deal with the EU which maintains the status quo for 2-3 years.
2) The economy rebounds to 2%. The UK economy advanced 0.3 percent on quarter in the three months to June of 2017, unrevised from the preliminary estimate and following a 0.2 percent expansion in the previous period. There was relatively strong growth in government spending and investment, while household consumption rose at softer pace and business investment stalled.
3) Consumer prices in the United Kingdom rose by 2.9 percent in the year to August 2017, beating market expectations of 2.8 percent and following a 2.6 percent gain in the previous month.
4) MPC commentary seeks to steepen the yield curve.
5) Current a/c deficit shrinks below 2%.
Bearish GBP scenarios:
1) Sub-1% growth as the consumer squeeze is aggravated by falling house prices.
2) Insufficient progress on the Brexit divorce delays the start of talks on a new trade deal beyond October.
3) Capital repatriation from long-term investors including central banks.
Bearish JPY scenarios:
1) Hawkish shifts by other G10 central banks accelerates to lead wider rate spreads with Japan and
2) Japanese government’s fiscal policy becomes more expansionary and the BoJ finances it, resulting in higher Japan’s inflation expectations
Bullish JPY scenario:
The global investors’ risk aversion heightens significantly, possibly due to deterioration in North Korea situation and/or US-Japan trade frictions.
On a broader perspective, we’ve already stated in our technical analysis section, that the bulls have managed to retrace above 38.2% Fibonacci levels from the lows of 123.041 levels in October 2016, for now, the consolidation phase evidences 15-months' highs after taking support at 23.6% Fibos (Refer monthly chart).
Overall, the minor trend is attempting to gain more upside traction despite minor hic-ups, while the major trend has been robust for the consolidation phase. Thus, on speculative grounds, we advocate buying one touch binary calls and on hedging grounds, encourage longs in futures contracts of mid-month tenors in order to arrest upside risks.
Currency Strength Index: Ahead of the announcement of the UK retail sales numbers and BoJ’s monetary policies, FxWirePro's hourly GBP spot index is flashing at 60 levels (bullish), while hourly JPY spot index was at shy above -37 (bearish) at 07:36 GMT. For more details on the index, please refer below weblink:
http://www.fxwirepro.com/currencyindex.
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