The GBPJPY pair has declined over 0.5% for the week, with the Yen currently holding the upper hand in the short term. Risk aversion dominates, fuelled by escalating tensions in the Middle East following a US drone attack. This safe-haven bid bolsters the Yen while the Pound struggles amid expectations of a BoE rate hold in February.
Adding to the Yen’s strength, Japan’s unemployment rate dipped in December, while the US Treasury lowered its borrowing forecast, pushing US yields lower and further undermining the USD and, by extension, the GBPJPY.
However, the GBPJPY downside is likely to be capped by the BoE’s hawkish tilt, with inflation concerns likely to keep rates on hold for the foreseeable future. While a February rate hike remains likely, expectations for further cuts later in the year have dampened, lending support to the Pound.
Technical
On the 4-hour chart, the currency pair currently sits at 187.049, with the price action trading lower within a bullish flag trading pattern. Price action trading below the 20-SMA (green line) and 50-SMA (blue line) but above the 100-SMA (orange line), indicating underlying bearish momentum.
The RSI dips below 50, indicating bearish pressure, but falling volume hints at possible exhaustion. Therefore, short-term trading opportunities could arise towards the initial resistance at the 61.80% Fibonacci retracement level at 182.339 should the price action sustain a push above the 23.60% Fibonacci retracement level. A break above the initial resistance level and possibly the flag would likely bring the 188.931 resistance level into play in the short term.
However, short-term trading opportunities could exist towards the support level at the 186.176 price level should the price action sustain a break below the 186.763 significant level. A break below the initial support could confirm the bearish momentum, likely bringing the 185.262 support level into play.
Summary
GBPJPY struggles near 187 amid rising risk aversion due to Middle East tensions. Japanese Unemployment Rate contraction provides limited support. Anticipation of US military actions and the Bank of England’s February meeting add to market uncertainty.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire, Ministry of Internal Affairs & Communications.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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