GBPJPY could be due for a long-term reversal, as price formed a double bottom pattern on its 4-hour chart. The pair failed in its last two attempts to break below the 129.00 area and is on its way to test the neckline at the 141.00 mark. A break above this neckline could confirm the potential reversal and take price up by 1200 pips or the same height as the chart formation.
The 100 SMA is below the 200 SMA on this time frame for now, which suggests that the path of least resistance is still to the downside. However, the gap between the moving averages is narrowing so an upward crossover might take place and confirm that bullish pressure might be seen.
Stochastic is indicating overbought conditions and is turning lower, also suggesting that sellers are in control of price action for now. A quick pullback from the recent climb could still be seen before buying momentum strengthens.
The event risks lined up for this week could determine whether GBPJPY can break past the neckline resistance and carry on with its climb. The BOE Inflation Report hearings are scheduled midweek, possibly setting the tone for the UK central bank’s next monetary policy steps.
For today, the UK services PMI is up for release and a strong read could continue to reassure traders that the UK economy has stayed afloat even after the Brexit vote. Prime Minister Theresa May has reiterated that the Brexit could pose huge risks but so far it seems that the economy is holding up well. Analysts are expecting to see a rise from 47.4 to 49.1 for the services PMI, and it’s worth noting that the manufacturing and construction industry reports released last week turned out better than expected.
As for Japan, the dovish policy bias of BOJ Governor Kuroda in his Jackson Hole testimony the other week still keeps weighing on the yen. Data has been mostly weaker than expected also, confirming that the BOJ might pursue more aggressive stimulus efforts.