GBP/JPY has been forming a rising trend line on its 4-hour time frame and looks ready to make another bounce off the support level. Price is finding support at the 50% Fibonacci retracement level for now, as this lines up with the 173.50 minor psychological level.
Stochastic is already in the oversold zone but hasn’t crossed up yet, indicating that there may be a bit of selling pressure left for a lower pullback to the actual trend line. A bounce from this area could take the pair up to its previous highs above the 175.25 area or higher.
On the other hand, a strong downside break could be a sign that the climb is over and that a downtrend is in the cards. Going long at 173.50 with a stop at 173.00 and a target of new highs at 176.00 could be a 5:1 return on risk.
Forex Signal Outlook
The BOE is set to announce its monetary policy decision later this week and expectations of upbeat remarks could drive the pound higher throughout the week. However, bleak manufacturing production data released yesterday has been weighing on the pair. In addition, the UK services PMI printed bleak results and may be a bit of a drag to growth later on.
On the upside, the BOE is still looking to gradually tighten monetary policy by hiking rates before the end of the year. After all, significant improvements have been seen in the UK economy and there is good reason to assume that these could be sustained.
On the other hand, the Japanese economy has had its fair share of weak economic figures lately, particularly in the Tankan survey. However, the BOJ maintains that they are not looking to add to their easing efforts anytime soon. A BOJ official did note that they need to hit the 2% inflation target as soon as possible, and the recent sales tax hike might help the economy do so.
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