GBP/JPY shorts were the best trade this week
The pound was the
The yen was the top performer this week while the pound lagged. In crisis and immediately afterwards GBP/JPY was a risk-sensitive cross but it's more of a proxy for Brexit and yen sentiment now.
It was dragged down this week by today's weak UK retail sales report. CPI numbers earlier in the week also slightly trailed estimates.
On the whole, the magnitude of all the weekly moves are small. Even in GBP/JPY, the cumulative 110 pip move is relatively tiny. For many weeks in the post-Brexit period, the pair had moves in the 300-500 pip range.
What's more notable is the technical picture. The pair is in a consolidating wedge following the minor uptrend since October. It's supported near today's lows, which also coincide with the 200-day moving average. On the upside, the 55-dma is resistance.
What it adds up to is a confluence of solid technical levels. That points to the possibility of a big move on a breakout. With talk an Article 50 trigger could come as soon as March 9, that sets up a big trade.
The thinking is that Article 50 is GBP-negative. However, that might not be the case. It's one of those things that was feared and built up for so long that it tends to be a 'buy-the-fact' kind of trade, especially if there is knee-jerk lower.
But don't ignore the JPY side. The BOJ is in a tough spot with a gigantic balance sheet whose growth is unsustainable. If Kuroda signals a taper in bond buying or relaxing of the yield curve control policy, it would mean a big negative move for all the yen crosses.
On the calendar next week:
- Japanese trade balance
- Nikkei Japan PMI
- BOJ's Kiuchi
- All-industry index
- House of Lords starts Article 50 debate
- Carney speaks in Parliament
- Second reading on Q4 GDP