The BoE last week surprised with a 50 bps hike following another hot CPI report the day before. In fact, core inflation rose to another record high and given the previous data like the very strong employment report where wages have risen much more than expected, the BoE decided that a bigger hike was necessary. This has given the GBP another boost although the upside momentum is starting to fade.
Conversely, recently we saw another hot core inflation report from Japan and the recent BoJ’s Summary of Opinions showed that the board is now less sure about inflation slowing back to 2% by the middle of fiscal year, which is something they’ve been citing very often, and one member called for a revision of their YCC policy.
This might be a hint of a BoJ policy tweak coming at the next meeting, but the market has been disappointed many times by the BoJ in the past months, so it’s a tough call to make.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPJPY has gone parabolic since the hot employment report two weeks ago. The bullish trend is still intact as the price keeps printing higher highs and higher lows and the moving averages are well crossed to the upside. If we get a bigger pullback, we can expect the buyers waiting for the price to come into the trendline and the red 21 moving average to re-enter the market all else being equal.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that this latest move higher is diverging with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. At the moment, we can see that the price is supported by the minor upward trendline and the red 21 moving average. If the price breaks below the trendline, we should see the price extending the fall into the 179.92 swing low level which would be the natural target of the divergent setup.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is trading within a rising channel. The nearest support zone is the 183.00 level where we have confluence with the previous resistance now turned support, the trendline, the 38.2% Fibonacci retracement level and the 4-hour 21 moving average. This is where we should expect the buyers entering the market with a defined risk below the trendline. On the other hand, the sellers will wait for the price to break below the trendline to pile in and extend the eventual selloff into the 179.92 level.
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