GBPJPY has been gradually trending higher on its short-term time frames, but it looks like a pullback is in order. Price has retreated from its previous highs at 191.50 and is testing support at the 200 SMA on the 4-hour chart.
This area has held as dynamic support in the past and might continue to do so. If a bounce takes place, price could move back to the previous highs and even attempt to break past the 192.00 major psychological mark.
Stochastic is pointing down, indicating that sellers are in control of price action. RSI is also reflecting a pickup in selling momentum, hinting at a potential downside break. If that happens, the pair could be in for a longer-term drop, possibly until the next support near 189.00.
GBPJPY Forex Fundamentals
Earlier today, Japan reported a stronger than expected core machinery orders figure, which indicated a 3.8% gain versus the projected 2.0% decline. This was also better than the previous 2.9% gain. There have been no reports out of the UK so far, which means that the current selloff was mostly due to yen strength.
Japanese officials continued to reassure markets that the economy is recovering moderately, which might allow them to increase the sales tax in 2017. Meanwhile, BOJ Governor Kuroda said that they’re not too worried about yen weakness against the dollar since a Fed rate hike for the year has long been priced in.
Event risks for this setup today include the release of UK manufacturing and industrial production reports. Stronger than expected data could remind traders that the BOE’s next move is still likely to be a rate hike and add support for the pound. On the other hand, bleak figures could cast doubts on this hawkish outlook and trigger a pound selloff.
Risk appetite could also push this yen pair around, with traders still holding out for a Greek debt deal over the next two weeks.
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