Considering today’s hot CPI report and the recent incredibly strong Employment report with high wage growth, 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, which has played a big role in the significant depreciation of the Japanese Yen (JPY) over the past two years.
This divergence in monetary policies should keep the upward movement in the GBPJPY pair steady, all else being equal. Probably, only concerns about a potential global economic recession can cause the pair to decline or 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 in the past week GBPJPY has had an incredibly strong rally as the UK inflation and employment data keep printing on the hot side. This is expected to keep the BoE on track to raise rates with a terminal rate now seen in the 6% region vs. 5.25% a couple of weeks ago. We can see that the price has overextended a bit as depicted by the price distance from the blue 8 moving average. In such instances, the price consolidates or pulls back into the moving average before continuing in the original direction.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the moving averages have crossed to the downside which may signal a deeper pullback in the making. A good level for the buyers to lean on to is the upward trendline where we can also find the Fibonacci retracement levels.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is bouncing from the previous swing low level. We saw an aggressive selling in GBPJPY since the release of the hot UK CPI report this morning, so this might be a signal that the price has gone too far too fast, and the market needs to retrace. If the price breaks below the 179.90 level, we can expect more sellers entering the market targeting the trendline, while a break above the 181.25 resistance should see more buyers piling in and extend the rally above the high, with the next resistance standing at the 188.50 level.
