GBPJPY has been trading below a descending trend line on its 4-hour time frame and might be ready to resume its selloff soon. Price is testing the 50% Fibonacci retracement level near the 100 SMA, which might hold as dynamic resistance.
A higher pullback could last until the 61.8% Fibonacci retracement level, which coincides with an area of interest or former support level. Stocahstic is already indicating overbought conditions so sellers might regain control from here. If so, GBPJPY could drop back to the previous lows at 152.00.
RSI is also starting to turn lower to indicate a return in bearish momentum. Meanwhile, the 100 SMA is below the 200 SMA so the path of least resistance is to the downside. However, if an upside breakout takes place, a longer-term reversal could be in the cards.
Event risks for this setup include the release of UK retail sales data. A 0.1% decline in consumer spending is eyed, slightly better than the earlier 0.4% drop, but a weaker than expected reading could be possible since wage growth has been absent.
Yesterday’s jobs release printed weaker than expected results, as claimants rose by 6.7K instead of falling by the projected 11.9K. In addition, the previous month’s report was downgraded to show a 9.3K drop in claimants. Meanwhile, the average earnings index slipped from 2.1% to 1.8% to show falling wages.
There have been no major reports out of Japan recently, as risk sentiment has been responsible for pushing yen pairs around. The ECB statement is coming up and their rhetoric could have a strong impact on market sentiment. Remarks on the negative repercussions of a potential Brexit also appear to be supporting the pound, as this could convince several voters to vote to stay in the EU.
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