Published on May 26, 2023

Daily Analysis For GBP/JPY 26-05-2023

GBP/JPY Analysis

Key Points for GBP/JPY pair

• The GBP/JPY pair has experienced a strong recovery and surged to approximately 172.50 following the release of mixed UK Retail Sales data.

• The monthly UK Retail Sales have shown a significant expansion, indicating resilience in household demand.

• Additionally, Bank of Japan (BoJ) member Ueda is reportedly considering various options for making adjustments to the Yield Curve Control (YCC) policy.

Today's Scenario: - The GBP/JPY pair has declined below the immediate support level of 172.30 in the early European trading session. The drop came after the release of mixed United Kingdom Retail Sales data for April.

While the monthly Retail Sales expanded by 0.5%, surpassing the expected 0.3% growth and recovering from a previous contraction of 1.2%, the annual Retail Sales missed estimates and contracted by 3.0% instead of the anticipated 2.8% decline. Excluding volatile fuel factors, monthly Retail Sales showed a 0.5% expansion, exceeding the projected 0.3% growth.

The solid increase in UK monthly Retail Sales indicates that household demand remains resilient, which may keep pressure on the Bank of England (BoE) to address potential inflation concerns. BoE interest rate-setter Jonathan Haskel mentioned that if there is evidence of persistent inflation, the policy could be tightened.

The UK Finance Minister expressed confidence that inflation will be halved by the end of the year, as promised by UK Prime Minister Rishi Sunak. The government aims to reduce taxes to alleviate the impact of stubborn inflation on households. However, if inflation remains high, it could have severe consequences.

Regarding the Japanese Yen, discussions about potential adjustments to the Bank of Japan's (BoJ) Yield Curve Control (YCC) policy by Kazuo Ueda have attracted attention. Ueda mentioned that one option could be to shorten the duration of bond yields targeted to the five-year zone instead of the current 10-year zone.

Diagram of GBP/JPY

Economic Events: -

GMT	Event	Impact	Currency
00:30	(Japan) Tokyo Core CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI YoY	Low	JPY
00:30	(Japan) Tokyo CPI Ex Food and Energy YoY	Low	JPY
02:30	(Australia) Retail Sales MoM	High	AUD
04:35	(Japan) 3-Month Bill Auction	Low	JPY
06:00	(Japan) Leading Economic Index	Low	JPY
06:00	(Japan) Coincident Index	Low	JPY
07:00	(Lithuania) Retail Sales MoM	Low	EUR
07:00	(Lithuania) Retail Sales YoY	Low	EUR
07:00	(United Kingdom) Retail Sales ex Fuel MoM	High	GBP
07:00	(United Kingdom) Retail Sales ex Fuel YoY	High	GBP
07:00	(United Kingdom) Retail Sales YoY	High	GBP
07:00	(United Kingdom) Retail Sales MoM	High	GBP
07:30	(Switzerland) Non Farm Payrolls	Low	CHF
07:45	(France) Consumer Confidence	Medium	EUR
08:15	(Euro Area) ECB Enria Speech	Low	EUR
08:40	(Euro Area) ECB Lane Speech	Medium	EUR
09:00	(Italy) Consumer Confidence	Medium	EUR
09:00	(Italy) Business Confidence	Medium	EUR
09:00	(Austria) Bank Austria Manufacturing PMI	High	EUR
10:10	(Italy) 6-Month BOT Auction	Low	EUR
11:00	(France) Jobseekers Total	Low	EUR
11:00	(France) Unemployment Benefit Claims	Medium	EUR
11:00	(Luxembourg) Balance of Trade	Low	EUR
13:30	(Canada) Wholesale Sales MoM	Low	CAD
13:30	(United States) Goods Trade Balance	High	USD
13:30	(United States) Wholesale Inventories MoM	Medium	USD
13:30	(United States) Core PCE Price Index MoM	High	USD
13:30	(United States) Core PCE Price Index YoY	Low	USD
13:30	(United States) PCE Price Index MoM	Medium	USD
13:30	(United States) PCE Price Index YoY	Medium	USD
13:30	(United States) Personal Spending MoM	High	USD
13:30	(United States) Personal Income MoM	High	USD
13:30	(United States) Retail Inventories Ex Autos MoM	Medium	USD
13:30	(United States) Durable Goods Orders Ex Transp MoM	High	USD
13:30	(United States) Non Defense Goods Orders Ex Air	Low	USD
13:30	(United States) Durable Goods Orders MoM	High	USD
13:30	(United States) Durable Goods Orders ex Defense MoM	High	USD
15:00	(United States) Michigan Consumer Expectations	Low	USD
15:00	(United States) Michigan Current Conditions	Low	USD
15:00	(United States) Michigan 5 Year Inflation Expectations	Low	USD
15:00	(United States) Michigan Consumer Sentiment	High	USD
15:00	(United States) Michigan Inflation Expectations	Low	USD
16:00	(Canada) Budget Balance	Low	CAD
18:00	(United States) Baker Hughes Oil Rig Count	Low	USD
18:00	(United States) Baker Hughes Total Rig Count	Low	USD

Buy Scenario: - From a daily chart perspective, it appears that the GBP/JPY pair is likely to continue its uptrend unless there are significant changes in fundamental factors, such as a shift in monetary policy by the Bank of Japan (BoJ). The breakout of the falling wedge pattern and the GBP/JPY's momentum above the May 2 high at 172.33 have opened the door for further gains.

Currently, the GBP/JPY has been consolidating within the range of 171.20-172.79 as buyers prepare for a potential upward move to reach the measured target of the falling wedge pattern at 174.30.

Therefore, the path of least resistance for the GBP/JPY pair is upward. The initial resistance level for sellers would be the year-to-date high at 172.79. If this level is broken, the pair is likely to move higher and test the 173.00 level. A further breach would expose the 174.00 level, followed by the falling-wedge objective at 174.30. Till we do not advise to buy GBP/JPY.

Sell Scenario: - On the downside, if the GBP/JPY slips below 172.00, it could lead to a test of the recent two-week low at 171.19, and potentially even the 170.00 level. If the pair drops below 170.00, the 20-day Exponential Moving Average (EMA) around 170.65 may act as a support level. Till we do not advise to sell GBP/JPY.

Support and Resistance Level: -