Europe stabilizes: London as the point of equilibrium

GBP/JPY

Key zone: 207.00- 209.00

Buy: 209.50 (on a confident breakout of the 209.00 level); target 210.50-211.50; StopLoss 208.80

Sell: 206.50 (on strong negative fundamentals) ; target 205.00-204.50; StopLoss 207.20

European stock markets are showing signs of recovery: the DAX is up about 0.7%, the CAC 40 around 0.5%, and the FTSE 100 roughly 0.5%. Investors are simultaneously assessing fresh quarterly earnings reports and new UK inflation data, which are shaping more dovish expectations for monetary policy.

Overall, the corporate picture looks resilient. Around 60% of European companies have already beaten profit forecasts, while in an “average” quarter this figure is usually around 54%. This supports risk appetite despite ongoing macroeconomic uncertainty.

The key driver was inflation in the UK: it fell to its lowest level since March last year, strengthening expectations that the Bank of England could cut the policy rate to 3.5% as early as next month.

Although core inflation remains above the 2% target, price growth is expected to slow noticeably in April: last year’s spike in utility tariffs and other state-regulated prices will drop out of the annual comparison base.

Additional pressure on rate expectations comes from weak labor market data:

• the unemployment rate rose to 5.2% versus a forecast of 5.1%, the highest level in five years;
• job creation slowed from 82,000 to 52,000;
• unemployment benefit claims increased by 28,600 in January after a rise of 2,700 the month before;
• average wage growth excluding bonuses fell from 4.6% to 4.2%.

This combination – rising unemployment, weaker hiring, and a sharp increase in benefit claims – points not to statistical noise but to a real cooling of the labor market. As a result, the pound finds itself in a kind of trap between slowing economic growth and only gradual disinflation.

Within the Bank of England, debate is intensifying over the future path of rates. The regulator continues to emphasize that wage dynamics and labor market conditions remain the key indicators. Despite slower income growth, wages are still seen as a potential source of persistent inflationary pressure.

The yen factor: an external risk for Europe

An additional source of instability is the Japanese yen. Concerns about a sharp increase in the issuance of Japanese government bonds weakened last week, which became a catalyst for the formation of bearish reversal patterns in yen cross-rates.

This was supported by promises from the Government of Japan to limit the reduction of the consumption tax on food to a two-year period, as well as expectations that financing would come not from new borrowing but from alternative sources.

So what is the result?

The European market receives short-term support from UK macro data and expectations of rate cuts. However, the sustainability of this growth remains questionable due to the weakening UK labor market and external currency risks linked to the yen. London temporarily becomes an anchor of stability, but the overall risk structure is increasingly shifting toward higher volatility.

At high levels, reversal signals have begun to form in the EUR/JPY and GBP/JPY pairs. Although long-term uptrends formally remain intact, the appearance of such patterns indicates a shift in the risk balance. Both currency pairs are testing key support levels, and confirmation of a change in dynamics may appear in the near future.

So we act wisely and avoid unnecessary risks.

Profits to y’all!