The BoE surprised at the last meeting with 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 the more aggressive option. Since then, we got another employment report but 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 today will probably decide if it’s going to be 25 bps or 50 bps.
On the other hand, the BoJ maintains its dovish stance while core inflation in Japan keeps on rising. There are small signs of a possible exit from the current policy though despite the BoJ board members keep on dismissing any change at the upcoming meeting. Nevertheless, the market still sees the risk of a surprising change to the YCC policy.
GBPJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the GBPJPY eventually pulled back into the trendline where it bounced from the 179.92 support and the 38.2% Fibonacci retracement level. This pullback though, made the moving averages to cross to the downside and give the pair a bearish bias. A miss in the UK CPI report should trigger a bigger selloff, while a beat should invalidate the bearish setup.
GBPJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price was trading within a rising wedge pattern and there was a divergence with the MACD. This is generally a strong signal that a pullback is due, and the usual target is the base of the wedge, which in this case was the 179.92 level. In fact, the price pulled back almost perfectly into that level and eventually bounced.
GBPJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is struggling to break above the 182.00 handle, so we have a key resistance level to watch. The buyers will need the price to break above the resistance with conviction to pile in and target the highs neat the 185.00 handle. The sellers, on the other hand, are likely to lean on the resistance with a defined risk above it to target new lows. Watch out for the UK CPI report as it will likely decide where the price will go next.