Considering the recent hot CPI report and this morning’s incredibly strong Employment report with high wage growth, it is anticipated that the Bank of England (BoE) will continue to raise interest rates in order to address one of the highest inflation rates among the major economies. On the other hand, the Bank of Japan (BoJ) is expected to maintain its accommodative monetary policy this week, which has played a role in the significant depreciation of the Japanese Yen (JPY) over the past two years.
This divergence in monetary policies has led to a strong upward movement in the GBPJPY pair. It appears that only concerns about a potential global economic downturn can cause the pair to decline, otherwise the BoJ will need to switch to a hawkish stance to defend the JPY depreciation.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the buyers keep leaning on the moving averages to position for more upside on the GBPJPY pair. The recent hot inflation data from the UK and the high wage growth should keep the BoE on track to increase interest rates.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a big divergence with the MACD going on, which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we only got some shallow pullbacks, and a reversal is unlikely to occur at least until we get a fundamental catalyst that points to a recession or the BoJ becomes hawkish.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has recently bounced from a support near the 174.50 level where we had also the 38.2% Fibonacci retracement level for confluence. The big spike today is because of the strong employment report and unless we get bad US CPI data today, we should keep seeing the GBPJPY pair rallying.