The British Pound was under some heavy selling pressure in the Wednesday session, arising as the biggest mover among major currencies afterthe latest inflation report. As a result, the GBPJPY currency pair reversed its recent gains, converging with a psychological support level.
This comes as the UK reported year-over-year inflation of 3.9%, missing the 4.4% consensus and showcasing a significant shift from the prior 4.6% print. This aligns the UK with other major economies that have brought forward bets of potential rate cuts occurring in the upcoming year, a possible sign that the restrictive monetary policy has reached its peak.
This dovish development comes a day after the Bank of Japan (BoJ) opted to keep its ultra-loose monetary policy intact, with its interest rates remaining unchanged at -0.1%. The BoJ will await more evidence from the market to justify a potential hawkish shift, which has exerted some downward pressure on the Japanese Yen in the early parts of the week.
Technical
On the 4H chart, an ascending triangle has formed, with the currency pair recently moving below the 50-SMA (blue line) toward the 25-SMA (green line), which converges with the dynamic support of the triangle. The price action around this level could be pivotal in the upcoming sessions.
Should the currency pair move below the 25-SMA at 181.447, it could trickle down toward support at 180.896. This level could potentially act as a pivot point for a temporary retracement, but if an additional breakdown occurs here, it could signal a sustainable downtrend toward 180.028 and the demand zone at 178.720.
However, if the 25-SMA support holds, the triangle pattern could continue. The 50-SMA at 181.759 provides resistance to this movement and could keep the triangle breakdown in play if it halts any buying momentum. If the currency pair breaches this level, it could move higher toward 182.559 and 183.447, the Fibonacci midpoint. The triangle resistance at 184.119 is a level to watch out for in the upcoming sessions, as it could be the catalyst level of an ascending triangle breakout.
Summary
After the UK inflation report, the GBPJPY currency pair is trading close to the dynamic support of an ascending triangle, making the 25-SMA at 181.447 a crucial one to look out for in the upcoming sessions.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change, which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
