The recent downtrend on GBPJPY might soon turn, as the pair formed an inverse head and shoulders reversal pattern on its 1-hour chart. Price is currently testing the neckline around the 186.50 minor psychological level and a break past the resistance might mean that an uptrend is in order.
Stochastic and RSI are on the move up, supporting further bullish momentum. An upside break could lead to a rally of around 600 pips or the same height as the chart pattern.
In addition, the 100 SMA just crossed above the longer-term 200 SMA, confirming that the path of least resistance is the upside. However, if the 186.00-187.00 levels continue to keep gains in check, price could eventually fall back to the previous lows near 180.00 or until the area of interest at 184.00.
GBPJPY Fundamental Factors
The BOE decided to keep interest rates and asset purchases unchanged during their policy statement yesterday, with only one dissenter voting to hike rates. The minutes of their monetary policy meeting indicated that officials aren’t worried about the potential negative impact from the slowdown in China, as the U.K. economy is enjoying strong fundamentals.
Furthermore, policymakers emphasized that the U.K. is still on track to a rate hike possibly early next year. They projected that annual inflation would pick up to 1% by the turn of the year, although the volatility in commodity prices and forex fluctuations could pose uncertainties.
As for the yen, the lower-yielding currency has been weighed down by reports that the Japanese government is looking to hike the corporate tax rate next year. Aside from that, a BOJ official suggested that further easing might be a possibility. There are no major reports due from the UK or Japan today, which suggests that the current fundamental biases might prevail.
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