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As of late, fears of the coronavirus have weighed down on markets. Risk currencies which include the British pound have gotten sold off in favor of safe haven assets like the Japanese yen. In fact, the daily chart of GBPJPY proves this.
Created with an ATFX MT4 account.
As of this writing, there are 18,100 confirmed cases of the deadly disease outside of China. A week ago, it was only at 5,300. Consequently, these figures have made investors jittery. If this sentiment carries on until next week, GBPJPY could drop lower to 130.65 where it bottomed out on October 10. This is hinted by the bearish flag which materialized after the currency pair consolidated following its sharp drop.
On the other hand, it is worth pointing out that the weekly time frame suggests a more bullish bias for GBPJPY. By connecting the highs of August 2015 and March 2019, we can see that the currency pair is trading above the falling trend line. This suggests that there may be enough buyers in the market to push price higher. The broken trend line may even provide the bulls with much needed support at 136.20 where GBPJPY also bottomed on April 2, 2017.
Created with an ATFX MT4 account.
Fundamentally speaking, this scenario is not too far-fetched. While coronavirus cases have been rising elsewhere in the world, the rise in the number of cases in China have slowed. Compared to a week ago, there has only been 1,800 additional cases. The current count is at 80,600. Some analysts are hopeful that if containment efforts are effective enough to slow down the spread at the epicenter, the rest of the world would soon follow. If
More importantly, it’s worth pointing out that among the major central banks, the BOE has been the only one that expressed its reluctance to ease. In a statement, incoming BOE Governor Andrew Bailey said that they will need to assess more evidence before making any monetary policy changes. This makes the British pound an attractive buy compared to its counterparts especially since the RBA, Federal Reserve, and BOC have all slashed rates.
Article written by Angeline Feliciano, Market Strategist at InvestingCube.com.
