GBPJPY recently made a sharp drop below a key support zone around the 178.00 major psychological level but may be due for a forex correction. Price appears to have found support above the 176.00 area and is retreating to the Fibonacci retracement levels marked on the 1-hour time frame.
Price could make a forex correction until the 61.8% Fibonacci retracement level, which lines up with the broken support. If this holds as resistance, GBPJPY could make its way back down to the previous lows or perhaps make new ones.
Forex Correction Levels
The 50% Fibonacci retracement level might already hold as resistance though, as stochastic has reached the overbought area and may be starting to cross down. If so, the selloff could start early as pound bears take control. Apart from that, a bearish divergence can be seen since stochastic made higher highs while price made lower highs.
The main event risk for this forex correction play today is the UK manufacturing PMI release in the London trading session. A stronger than expected reading might lead to more gains for GBPJPY and possibly a break past the 178.00 handle. If this happens, an uptrend could take place and push price up to the next resistance at 179.00-179.50.
Analysts are expecting to see an uptick from 52.5 to 52.9 in the manufacturing PMI, reflecting a faster pace of expansion in the industry. A lower reading compared to the previous month might lead to pound weakness, as this would indicate a slower expansion and perhaps a lower contribution to overall growth.
There are no reports lined up from Japan today but it seems that the yen is reacting mostly to risk sentiment these days. Weak global data could continue to support the lower-yielding yen and allow GBPJPY to complete its forex correction before resuming the longer-term downtrend.
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