- GBP/JPY’s daily chart shows a bear cross of major simple moving averages.
- BOJ is unlikely to cut rates or expand asset purchases.
- UK’s Retail Sales are forecasted to have tanked by 14% in April.
GBP/JPY’s long-term simple moving averages (SMA) have crossed bearishly in the run-up to the Bank of Japan’s emergency meeting and key data release in the UK.
The pair’s 100-day SMA has dropped below the 200-day SMA. This is the first bear cross of the long-term SMAs since June 2018. Many traders consider it as an advance warning of a big sell-off. However, more often than not, it traps sellers on the wrong side of the market. After SMAs are based on past data and tend to lag prices.
Focus on BOJ meeting
The BOJ will hold an emergence policy meeting on Friday to discuss support measures for financial institutions that boost lending to small firms hit by the coronavirus outbreak.
The emergency meeting comes on the heels of the recent data, which showed Japan’s economy slipped into a recession last quarter. The central bank is already running a bond purchase program since 2013. Further, rates have been set below zero for almost four years now. The IMF has warned against further reductions in interest rates and called for fiscal stimulus.
The central bank is unlikely to announce expansion of its asset purchase program or a rate cut on Friday and is likely to deliver credit easing measures, which will help facilitate corporate financing.
As such, the event may have little or no impact on the USD/JPY pair. The yen, however, may come under pressure if the bank expands monetary easing.
Eyes UK retail sales
The data due at 06:00 GMT is expected to show that consumer spending, as represented by Retail Sales, tanked by 15% in April, following March’s 5.1% decline. A weaker-than-expected reading will likely bolster the case for negative rates in the UK and send the GBP lower.
GBP/JPY is currently trading at 131.77, having found bids 131.40 in early Asia. The pair has failed to take out the 50-day average hurdle multiple times in the last three weeks. That average hurdle is located at 132.35 at press time.
Technical levels
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