GBPJPY has been trending lower on the longer-term time frames but it looks like a retracement is in order. Price bounced off the 151.50 minor psychological support and might be due for a pullback to the descending trend line connecting the latest highs of price action.
This coincides with the area of interest around the 158.00-159.00 levels, which also line up with the dynamic resistance around the moving averages. The 100 SMA just crossed below the longer-term 200 SMA to indicate that the path of least resistance is to the downside and that the selloff could resume soon.
A shallow pullback could last until the 38.2% Fib or the 155.00-155.50 area and reversal candlesticks forming at this level could be an indication that the downtrend is resuming. Stochastic is still on the move up so buyers are still in control, but it is also nearing the overbought area so buying pressure could fade soon.
Event risks for this setup include the UK CPI release today and the BOE statement on Thursday. Headline inflation is expected to hold steady at 0.3% while core inflation could rise from 1.2% to 1.3%. Underlying inflation indicators such as the PPI, RPI, and HPI are also expected to show gains.
Meanwhile, the BOE is expected to keep interest rates on hold while maintaining their pace of asset purchases. Still, dovish remarks from policymakers could keep a lid on the pound’s gains while upbeat comments could allow it to rally.
As for the yen, the recent jawboning attempts from Japanese officials seem to have fallen on deaf ears as the currency has still advanced against its rivals and might continue to do so until actual action is seen.
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