The BoE surprised at the last meeting delivering a 50 bps rate hike instead of the 25 bps expected as the hot employment report and the higher inflation data forced the central bank to choose a more aggressive action. Yesterday we got another employment report and this time it missed expectations on the jobs side but beat again on the wages side which points to a wage price spiral in action. In fact, the market is pricing in a higher chance of a 50 bps hike at the next meeting, although the UK CPI report next week will probably decide if it’s going to be 25 bps or 50 bps.
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 but the recent comments from the BoJ board members suggest that we won’t see any change in the near future.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that after the incredibly strong rally out of the hot UK employment report in June the momentum started to wane near the 183.00 level. The price then started to pull back into the trendline but without a change in the fundamentals, so this looks like a technical retracement from overstretched levels. The moving averages are also threatening a bearish crossover, which is something to watch closely.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the rising wedge around the 183.00 led to the deeper pullback once the price broke out to the downside. We can see that we also had a divergence with the MACD signalling weakening momentum and a possible pullback or reversal coming. The price is now near a strong support zone where we can find the trendline, the 180.00 round number, the base of the wedge pattern and the 38.2% Fibonacci retracement level.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence with the MACD right when the price is nearing the strong support zone. We should see the buyers stepping in here with a defined risk below the level and target a new high into the 185.00 level. More conservative buyers may want to wait for the price to first break above the downward minor trendline before piling in. The sellers, on the other hand, will want to see the price breaking below the strong support zone to pile in aggressively and extend the selloff towards the 173.00 level.
