GBPJPY has been selling off recently but the move appears to be part of a longer-term forex retracement to the 177.00 support zone. This lines up with the 61.8% Fibonacci retracement level on the latest swing low and high on the 4-hour time frame.
Stochastic is indicating overbought conditions, which suggests that further losses could be possible. Price could make a bounce off the 175.00 major psychological support, which appears to be the line in the sand for a forex retracement wave, before resuming the climb.
Forex Retracement Levels
A bounce off the current levels could mean a longer-term move to the previous highs near the 190.00 major psychological level. Stronger buying pressure could lead to an upside break past 190.00, but this could hinge on the UK and Japan event risks this week.
There are no market catalysts for this forex retracement trade today but the coming days could see more volatility for the GBPJPY pair. The BOJ is set to make its interest rate statement within the week and possibly trigger directional moves for this pair, even as no actual monetary policy changes are expected. Dovish remarks could renew the GBPJPY rally if traders anticipate further easing measures down the line.
Meanwhile, the BOE is set to release the minutes of its latest monetary policy meeting mid-week and this should shed more light on the central bank’s future policy bias. Also due then are the UK jobs figures, which might indicate stronger hiring gains and wage growth. In that case, the forex retracement could be completed and GBPJPY could regain upside momentum.
The path of least resistance for this pair is to the upside, as the UK is in a fundamentally stronger position compared to Japan. Although both countries are experiencing weak inflationary pressures, it appears that the UK consumer sector is actually benefiting from this condition.
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