The rates continue within the downward trend. At the same time, we can see a significant intensification since May. This month there was an escalation in the trade conflict between China and the United States, which motivated investors to choose safe assets. The economic downturn in Europe continues, and the pound is under pressure due to the political crisis and the failure of Brexit.
This week the situation has not changed. The trade conflict continues and supports the demand for safe assets. The probability of a trade deal in the near future tends to zero. Meanwhile, the British Prime Minister is resigning due to a lack of support in the plans to exit the EU. This uncertainty is adding pressure on the British economy, although the economic downturn is observed in other EU countries. Results of the elections to the European Parliament had little impact on the value of the pound, taking into account all the negative processes within Britain and the complex processes of choosing a new Prime Minister, as well as Britain's exit from the EU. As the elections to the European Parliament showed, there are many supporters of Brexit in Britain, and half of the Prime Minister candidates are ready for a hard version of Brexit, which should take place before October 31, 2019.
The situation in Japan didn't change. The Bank of Japan is not going to change the extremely soft monetary policy in the foreseeable future, trying to accelerate inflation in the country to the target level of 2%. However, according to the latest data, inflation in April was only 0.9%, although this is consistent with investors' forecasts and is the highest inflation rate in 6 months. In any case, the main factor in the growth of JPY is the trade conflict between China and the United States, as well as the weakness of the GBP.
Oscillators (MACD, RSI, Stochastic) unanimously indicate that the rates are in the oversold zone and give a signal to BUY. However, at the moment we cannot see any incentives that could support the pound in the near future. Also, we cannot expect an improvement in the trade conflict or the resumption of growth of the EU economy. On the other hand, the yen has every reason to strengthen against most currencies on Friday, with the release of new data on the Japanese economy, as well as with the publication of the PMI business activity indices in China. In this regard, the deals on the trend remain the most effective in the short and medium term.
