March 14, 2022 15:00:51

Markets have started the week on the front foot as risk appetite continues to enjoy more positive geopolitical headlines regarding the Ukraine crisis. Commodities are selling off with Brent crude plunging and now approaching $100.

The euro, and sterling to an extent, are bouncing while the yen and the aussie are the weakest majors on the day. There are several major risk events on the calendar in the next few days. The Fed and the Bank of England are both expected to raise rates by 25bps.

It will be the latter’s third straight meeting when it has hiked and takes rates back to their pre-pandemic level of 0.75%. Pressure from high imported energy costs may spur policymakers going forward. Whether roughly six hikes for this year, as currently predicted by money markets, gets justified may be key for sterling.

The Bank of Japan meet on Friday, but no policy action is forecast, in stark contrast to the BoE. Inflation is muted and the growth path is murky due to ongoing Covid outbreaks. The country is also highly susceptible to rising energy prices.

GBP/JPY bounces back above long-term trendline

This cross has been trading between 149 and 158 for last ten months or so. This year, buyers tried to break higher above 157.76 on several occasions but failed each time.

The geopolitical crisis in Ukraine pushed the pair sharply lower from late last month. Prices dropped below near-term support at the January low at 152.90. Sellers then pushed below long-term trendline support.

But this drop has turned with today’s break higher further cementing the idea of a “false break”. Prices have moved above the 200-day SMA at 153.27 which now becomes initial support. The 100-day SMA at 154.03 is resistance above, ahead of the 50-day SMA at 155.18. Bulls with have eyes on the May 2021 high at 156.06 and beyond. That long-term trendline sits next to the January bottom as support at 152.90.