We have a nice upside breakout in GBP/JPY this morning that has been driven by the strong rally in equities.

Tomorrow is also the end of the month, quarter and half year which means that fixing flows could lead erratic intraday activity over the next 24 hours. Typically fixing flows are partially based upon relative performance of stock markets over the past month, but because tomorrow is the month and quarter end, we could see divergent buying patterns by fund managers. This is because on a monthly basis, the S&P 500 outperformed the German DAX and U.K. FTSE but underperformed the Nikkei. On a quarterly basis however it underperformed the DAX and Nikkei but outperformed the FTSE. If the month and quarter to date performance were in line directionally, the fixing flows would be easier to predict.

However U.K. stock markets have dramatically underperformed Japanese equities which should pave for GBP/JPY buying over the next 24 hours. First quarter GDP revisions and the current account balance are also due for release tomorrow. The trade deficit narrowed in the first 3 months of the year, which means that the current account deficit should have narrowed.



Technicals, fundamentals and flow point to the strong potential for further gains in GBP/JPY.

 

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.