Sterling Retreats After Making 26 Year High, Yen Recovers
Sterling retreats mildly into US session on profit taking after scoring new 26 year high of 2.0132 earlier in European session on stronger than expected wage growth.
Meanwhile, both the Japanese yen Swiss Franc recovers further against dollar and crosses, which in turn dragged down EUR/USD and commodity pairs. EUR/USD made a fresh 2 year high of 1.3615 while Aussie and Kiwi made fresh 17 year and 22 year high respectively earlier today.
Today’s employment report shows that joblessness continued to retreat in UK in March, with Claimant Count dropped more than expected by -9.2k. ILO unemployment rate remained unchanged at 5.5% in Feb. More importantly, average earnings growth accelerated much more than expected to 4.6% in Feb, beating expectation of 4.3% and being the fastest growth since Mar 04. Increased wage inflation pressure is consistent with the current inflation outlook that BoE is facing and is supportive for an immediately hike in May and further tightening this year.
BoE meeting minutes reviewed that April’s decision to keep rate unchanged at 5.25% was decided by a 7 to 2 vote with Tim Besley and Andrew Sentence voted to raise rate by 25bps. This voting is slightly more hawkish than consensus expectation which expected one would vote for a cut. But still, we maintain that the information in this minutes is somewhat outdated and focus should be on the BoE Inflation Report on May 16 and minutes of the the May meeting which should contain full analysis of the current inflation outlook.
Daily Pivots: (S1) 160.97; (P) 161.56; (R1) 161.91;
EUR/JPY’s retreat from 162.42 continues today and is now pressing 4 hours 55 EMA (now at 160.42) as expected. As discussed before, with 4 hours MACD staying below signal line, a short term top should be formed at 162.42 after EUR/JPY failed to break through medium term and short term channel resistance. At this point, intraday bias remains on the downside as long as EUR/JPY stays below 161.55 minor resistance. Break of of 159.91 support will warn that the rally from 150.75 has completed and bring retest of short term rising channel support (now at 158.97). Meanwhile, it will take a break of 162.42 high to revive short term bullishness.
In the bigger picture, we’re treating the whole year long rise from 130.60 as resumption of the long term up trend with first wave ended at 143.60, subsequent correction ended at 137.167. The third wave up could have ended at 159.63 with a diagonal triangle already. Fourth wave correction has ended at 150.75 and rise from there represents the final advance in this structure. The channeling property of 143.60, 137.16, 159.63 and 150.75 is supporting this case.
Having said that, risk of a medium term reversal is also increasing with EUR/JPY now pressing the medium term channel resistance. Break of the short term channel support indicate that rise from 150.75 has completed and give a serious warning signal that the whole rise rise from 130.60 has ended. Focus will then turn to medium term channel support (now at 152.23). However, sustained break of the mentioned channel resistance will suggest that the underlying outlook is more bullish than we thought and will path the way towards 61.8% projection of 137.16 to 159.63 from 150.75 at 164.64.
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