Technical analysis of GBPJPY

The pound has been somewhat more volatile against the yen in the last fortnight compared to most of June as expectations that the BoE will bring tapering of QE forward are increasing ahead of tomorrow’s meeting of the MPC. British annual inflation in May was 2.1%, a high of over two years. Generally speaking, Britain’s recovery from covid-19’s economic effects has been significantly stronger so far than that of Japan. This technical analysis of GBPJPY looks at the daily chart.

The key resistance remains the latest three-year high of ¥156, while low support might occur around March and April’s lows near ¥149. Moving averages are likely to drive bounces in the short term before this area might be reached, though.

Technical indicators on GBPJPY D1

 

Moving averages continue to give a strong buy signal, with each of the 50, 100 and 200 SMAs successively above slower lines and below the price. The main area of support in focus from moving averages is the 100 SMA around ¥152.30, while the 50 SMA might also function as a support now that price has moved back above it more clearly today.

There is no indication of saturation from either Bollinger Bands or the slow stochastic. The latter at about 45 is close to neutral. Volumes also doesn’t give a clear signal, but this is expected in the runup to the BoE’s statement and press conference tomorrow.

Price action and Fibonacci

 

An inverted head and shoulders seems to be forming since last week, but given the context of an uptrend losing momentum and the key event tomorrow this pattern probably won’t be very reliable. New buyers from here might be looking mainly for a clear break above the latest high or, for the longer term, a more significant downward retracement that might provide a relatively less risky entry.

The 161.8% weekly Fibonacci retracement area based on the pound’s losses in March last year remains a crucial technical reference. A movement significantly away from this area in either direction would probably require notable new information from the BoE tomorrow or at least from important data. A retest of the equivalent 100% Fibo retracement looks very unlikely in the near future unless sentiment collapses.

Technical analysis of GBPJPY: summary

 

TA overall is positive for pound-yen with more gains favourable based on the chart alone. However, markets’ reaction to the BoE’s statement and press conference tomorrow will be crucial for ongoing direction. Given the very strong response on charts to the Fed’s last meeting, one can reasonably expect larger movements than normal in the early afternoon tomorrow even though ongoing direction might not be clear immediately.

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