The Chinese government finally made its move and promised to let the Chinese yuan trade more freely – appreciate against the dollar. This announcement on the weekend will have a positive impact on the Japanese yen across the board. The most interesting cross is GBP/JPY. Here’s an update on the situation and on the technical levels of the Geppy.
The move
After almost two years of having a fixed value, the Chinese central bank finally gave in to American pressures and announced that its currency could partially float. A maximum daily fluctuation rate of 0.5% will be allowed, and will be closely watched by the government.
There will be no one-time revaluation of the yuan. The Chinese emphasized that the changes will be gradual. The US has pressured China for a very long time, as the cheap Chinese imports into the US hurt the competitiveness of the American industry. The announcement comes just a few days before the G20 summit.
Apart from the competition with the US, the low value of the Chinese yuan hurt the other Asian nations, with Japan suffering the most. Now, Japan’s exports will be more competitive, helping the Japanese economy and pushing the Japanese yen higher.
Why GBP/JPY?
The Geppy, or dragon, isn’t only an exciting and popular cross. This week features the release of the British emergency budget in the UK, which is highly anticipated and could be Pound-negative.
This special event joins other regular releases in the UK. Read more about the events and the technical levels of GBP/USD in the British Pound forecast.
GBP JPY Techincals
The lines appear on the graph above. After May’s mess, the Geppy recovered and hit resistance at 136. The past week saw range trading between 132.50 and 136. The initial support line is 132.50 which held the pair in February and also in recent weeks.
Below, 130.40 is the lowest level in the past month, and with its proximity to the round number of 130, it becomes a strong line of support. The next line is rather close: 129.05, which was a minor support line during May and also worked as such back in January 2009.
Even lower, we already reach the year-to-date low of 126.71, which is a very strong line of support, but it’s also followed by a very near line – 125.30, a line where the Pound bounced from in February 2009.
The ultimate and far level of support is at 118.90, which was reached on January 23rd 2009, and serves as the lowest level in all times. This will probably not be approached this week.
If the British Pound enjoys positive news and the impact of the Chinese statement will be small, the pair will meet initial resistance at 136. This is followed by 138.25 which was a support line in February and also worked as a pivotal line before May’s crisis.
Higher, 139.40 is the next line of resistance, after it worked as a support line in during April’s range trading. The high line of that range is 146, which looks far at the moment.
All in all, the direction for this pair seems to be down. Also EUR/JPY, CHF/JPY and also the major pair USD/JPY look to fall.
Is there interest in outlook for these pairs as well?
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