GBY/JPY Weekly Outlook

The GBP/JPY spent the entire week locked in a tight range as the Japanese central bank decided to hold rates steady at zero. Prime Minister Yoshihiko Noda’s coalition government survived a no-confidence motion on Thursday, brought about by six opposition parties, over his proposal to double the sales tax. The JPY faced a week of poor economic reports, with first-half trade deficit jumping to a record high of 2.5 trillion yen ($31.78 billion), amid a surge in fuel bills, and Core Machinery Orders recording a worse than expected decline of 5.6 percent in June. The single bright spot was the unexpected rise in industrial output last month, to a seasonally adjusted 0.4 percent, from -0.1 percent in the preceding month.

The GBP also faced a slew of disappointing economic data last week, with U.K. trade deficit swelling to a record level in June, as exports tumbled during a month in which economic activity was affected by public holidays to mark the Queen's Diamond Jubilee. Earlier on Tuesday, the Office for National Statistics said U.K. Industrial Production fell 2.5 percent in June, the biggest monthly drop since November 2008. The Bank of England also slashed its medium-term growth forecast in its Quarterly Inflation Report on Wednesday.

GBP/JPY continued to gyrate inside the downward sloping trend channel of 120.82/123.77 last week and the outlook for the coming week remains neutral. An upside break-out of the previous pivot high of 123.77/79 will provide strong evidence of the completion of the pull back from 125.82, and will likely signal the resumption of the rebound from 118.82, which got stalled in the past few weeks. On the downside, a break-down below the key support level of 120.82 might make prices retest the June 1 low of 118.82.