The GBPJPY currency pair has recently witnessed a fascinating turn of events. After enduring three consecutive weeks of decline, it staged an impressive turnaround, closing positively last week and carrying upward momentum into the current trading week, marking a 50 basis point gain.
The dynamics shaping this shift stem from the Bank of Japan’s (BoJ) steadfast maintenance of its ultra-loose monetary policy, keeping interest rates at -0.1%. This decision sparked a flurry of activity as traders sought refuge in the higher-yielding allure of the British Pound, triggering a surge in the GBPJPY.
Notably, this sentiment favouring the Pound was further bolstered by encouraging signs within the UK’s retail sector, showcasing resilience despite the Bank of England’s efforts to temper consumer activity through elevated interest rates.
Technical
The GBPJPY’s price action unveils a tale of intriguing fluctuations, hinting at a potential shift in market dynamics. After consecutive gains in the past two trading sessions, the currency pair eyes a third day in positive territory, signalling a potential reversal from its previous downtrend lingering below the 100-day moving average.
The GBPJPY encountered a resistance level at 184.321 amid the prevailing bearish trend. However, finding a foothold at the 178.333 level, where oversold RSI conditions prevailed, the pair orchestrated a notable turnaround.
The pair subsequently stopped shy of the formidable resistance level, prompting a retracement. Amid this market oscillation, the 61.80% Fibonacci Retracement Golden Ratio emerged as a pivotal intermediate support level, reflecting the shifting sentiment among traders.
The current juncture presents a critical crossroad: should the upside momentum persist, a retest of the resistance level becomes probable. Conversely, a substantial breakdown below the Golden Ratio, coupled with high trading volumes, might herald prolonged bearish pressures, potentially retesting the 178.333 support level.
Summary
The GBPJPY, amidst recent tumultuous movements, reflects a complex interplay between central bank policies and market sentiment. While a resurgence buoyed by BoJ policies and positive UK retail data hints at potential stability, the currency pair navigates crucial technical thresholds.
Sources: Bank of Japan, Office for National Statistics, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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