The BoE surprised at the last meeting delivering a 50 bps rate hike instead of the 25 bps expected. This move was justified by the higher-than-expected inflation figures the previous day and the really hot employment report prior to that. BoE’s Governor Bailey has also reiterated recently at the ECB forum that they will do what is necessary to bring inflation back to target and that they will remain data dependent.
On the other hand, the BoJ remains stuck with its dovish monetary policy even if Japan’s core inflation keeps climbing to new highs. There are tentative signs of a possible exit from this policy though as we saw in the latest BoJ’s Summary of Opinions where members didn’t expect inflation to return back to 2% as they previously mentioned, and a member called for a revision of the YCC policy.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that GBPJPY had an incredible rally since the last employment report back in the middle of June. The trend is undoubtedly bullish with moving averages crossed to the upside and the price making higher highs and higher lows. We can notice though that the upside momentum if waning as the rally slowed considerably and the price didn’t react much both to the hot UK CPI data and the surprising BoE’s rate hike. These are generally signs of a top.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that GBPJPY is forming a rising wedge pattern and we have also the divergence with the MACD as a confirmation given that these patterns are divergent in nature. The price may still make a new higher high, but we are likely to see a break to the downside soon and a fall into the major trendline where we can find the base of the wedge and the 38.2% Fibonacci retracement level for confluence. That’s where we should see strong buyers stepping in to target new highs, while the sellers will want to see a break lower to target new lows.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is now trying to break above the 183.80 resistance zone. The multiple rejections formed an ascending triangle pattern and this opens up two possible scenarios:
- A break to the upside should lead to a rally towards the upper bound of the wedge, somewhere near the 185.00 level.
- A break to the downside should lead to a deeper pullback into the 180.00 level.
See also the video below:
