GBPJPY has been on a strong rally since mid-April but it appears that bulls are losing momentum. Price is making a pullback on the 4-hour chart and could draw support around the Fibonacci forex correction levels of the latest rally.
The short-term EMA is treading above the long-term EMA, confirming that the rally is likely to be sustained once bullish pressure picks up. Price could retreat to the 38.2% Fibonacci retracement level, which is close to the 186.50 minor psychological support area.
Forex Correction Levels
A larger forex correction could last until the 50% Fibonacci level, which lines up with the 180.00 major psychological support. This is also near the long-term EMA, which has held as dynamic support in the past.
Stochastic is on its way up but could make its way back south once more, leading GBPJPY to pull back to the 61.8% Fibonacci forex correction level. This coincides with a broken resistance level and might act as the line in the sand for any declines. A break below this level would confirm that pound bears are taking over and that a longer-term downtrend is taking place.
Data from the UK economy has been mostly disappointing, with the latest manufacturing and construction PMI falling short of expectations. The services PMI is up for release today and it could dictate GBPJPY price action since this sector comprises two-thirds of overall economic activity in the country. The reading is slated to dip from 58.9 to 58.6, which would reflect a slower expansion in the industry.
Japanese traders are still off on a holiday for today, which explains the lack of liquidity among yen pairs. Data from Japan has shown a few improvements last week, lowering the odds that the BOJ would ramp up its easing program. In fact, one policymaker already voted to taper the central bank’s bond purchases.
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