GBPJPY has staged a remarkable turnaround, surging over 2.3% this week after languishing near 181.00 earlier. Soaring UK data, from robust credit figures to improved service sector activity, fuelled the rally, underpinned by rising Gilt yields.
Credit data reveals Britons borrowing at the highest rate in seven years, suggesting resilience despite higher BoE rates. Services PMI also surged to a seven-month high, exceeding forecasts and highlighting business optimism. Lastly, upbeat data reinforced GBP’s appeal, pushing 10-year Gilt yields towards 3.75%.
On the Yen front, BoJ remains dovish, reiterating its commitment to loose monetary policy and hinting at rate hikes only upon sustained wage growth. Also, Disappointing Jibun Bank Manufacturing PMI reinforces recessionary concerns, casting doubt on BoJ’s normalization intentions. Yen continues to struggle as investors remain uncertain about the timing of BoJ’s policy shift.
Technical
The 4-hour chart shows that the GBPJPY currently hovers around 183.863, facing a critical supply zone above. This area has previously rejected upward advances, testing bullish resolve. The price action trading is above the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). The upward-sloping 20-SMA recently broke above the 50-SMA and 100-SMA, further reinforcing this trend.
However, the overbought RSI (75.84) warns of potential market exhaustion. Short-term trading opportunities could arise towards the initial support at 182.339 should the price action fail to push past the zone. A break below the 182.339 level would likely bring the 180.928 support level into play in the short term.
Conversely, short-term trading opportunities could exist towards the resistance level at the 185.058 price level should the upward push be sustained. A break above the initial resistance could confirm the bullish momentum, likely bringing the 186.176 resistance level into play.
Summary
The GBPJPY rally is fuelled by a confluence of positive UK data and contrasting Japanese economic woes. The BoE’s hawkish tilt and the BoJ’s dovish stance widen the gap between the two currencies, propelling the pair higher. While a short-term correction is possible, the technical outlook remains bullish, with GBPJPY eyeing further gains towards 185.00 and beyond.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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