Sterling turned out to be the best performing currency this past week thanks to a beginning of the week and end of week rally. There was actually very little in the way of U.K. data except for Friday when the currency was propelled higher by stronger industrial production and trade balance. There was also no progress on Brexit talks though Prime Minister May has grown increasingly conciliatory with talks that she could be willing to pay the EU the entire Brexit bill and possibly even more to secure a better trade deal. The EU on the other hand hasn’t been very cooperative and so Brexit developments still need to be watched carefully going forward. Next week will be a busy one for sterling with labor, inflation and retail sales reports scheduled for release along with speeches by a number of Bank of England officials including Governor Carney. If the data is good, it will propel the currency higher, taking GBP/JPY up with it. The U.S. dollar will be affected by 3 distinct factors in the coming week politics, economics and monetary policy. There’s no doubt that politics will be the primary driver but with 6 Federal Reserve Presidents speaking, the prospect of rate hikes could also affect how the greenback trades. Retail sales and consumer prices are also scheduled for release and investors will be eager to see if last month’s sharp increase in jobs translated into more spending. While we believe that rate hike talk could lift the greenback, lower gas prices and zero wage growth in October along with the drop in consumer sentiment means spending may be restrained. So on balance, we expect a mildly positive boost from Fed speak and U.S. data. Politics on the other hand is always difficult to predict.
Technically, GBP/JPY has done a great job of holding above the 50-day SMA near 148.70. If it breaks above 150 (and it looks like it will), the next stop could be 152. However if it sinks below 148.50, we could see losses extend as far as 147.00
