A month ago, we saw a reversal of the trend in favor of the pound, although the situation in the world remains tense and the demand for safe assets is high. Nevertheless, the pound strengthened, receiving support from the recovery of production output in China, which restores demand for risky assets. A weak uptrend has formed, but we believe that it will not last long because the coronavirus epidemic has not ended and has a long-term negative impact on the economy.
In the absence of macroeconomic reports in Britain and Japan, the coronavirus has become a crucial factor for the GBP/JPY. Today, the yen received support due to reports of new coronavirus outbreaks, which are recorded in countries where the epidemic was in decline. In particular, in China, the highest increase in the number of cases over the past 6 weeks was observed.
The key day for currency pairs with the JPY will be Friday this week, when China's GDP for the first quarter of 2020 will be published - the data matching exactly the period when the Chinese economy was paralyzed due to the coronavirus. According to forecasts, the GDP will shrink by 6.5%, which is a shocking indicator for the world economy in any case. If the GDP shrinks significantly less than expected, risky assets will receive support, as this will mean that the impact of the coronavirus on the economy is less extensive than previously feared.
We believe that the JPY will still continue strengthening against the pound, which will not have enough incentives for further growth. The resumption of the downtrend or at least the consolidation of the rates in a certain range is quite likely in the near future. Most technical analysis tools also indicate the efficiency of short deals. So today, we are choosing deals to SELL, which seem to be relevant until the end of the week.
