GBP/JPY Price Analysis: Consolidation Phase with Bullish Sentiment - 18-07-2023

GBP/JPY Analysis

Key Points: -

• The GBP/JPY pair is experiencing slight losses, trading around the 181.40 level.
• The limited upside potential for the Japanese Yen (JPY) can be attributed to soft data coming out of China, which has had an impact on market sentiment.
• Traders are keeping a close eye on Japan's Trade Balance Data, scheduled to be released on Thursday, as well as England's Consumer Price Index (CPI) figures, which are due on Tuesday.

Today's Scenario: -

The GBP/JPY pair is currently trading around 181.40, having recorded gains over the past two days. The Japanese Yen (JPY) faces limited upside potential due to weak Gross Domestic Product (GDP) data from the second quarter and mixed Retail Sales figures from China, which may continue to weigh on the Japanese economy. Market participants are eagerly awaiting inflation data from the UK, scheduled for release on Tuesday.

Recently, there have been speculations in the market regarding a potential change in the Bank of Japan's (BoJ) Yield Curve Control (YCC) policy, driven by increasing local wages. However, no official indications have been provided by BoJ officials yet. With soft economic data emerging from China, investors will shift their focus to Japan's Trade Balance data for June to further evaluate the possibility of a shift in the BoJ's ultra-dovish monetary policy stance.

On the other hand, Tuesday's highlight will be the release of inflation data from the UK. The Consumer Price Index (CPI) for June is expected to show a decline to 8.2% YoY from the previous reading of 8.7%, while the Core CPI is predicted to remain unchanged at 7.1% YoY. Expectations for a tightening of monetary policy by the Bank of England (BoE) remain steady, with the World Interest Rate Probabilities (WIRP) tool indicating that a 50 basis points (bps) hike is already largely priced in for the August 3rd meeting, followed by additional 25 bps hikes in September, November, and early 2024.

Considering these factors, the divergence in monetary policies between the BoE and the BoJ may continue to favor the British Pound (GBP) over the Japanese Yen (JPY)

Diagram of GBP/JPY: -

Economic Events: -

Buy Scenario: -

On the upside, if the GBP/JPY pair manages to clear the resistance hurdle at 182.40, it could target the yearly high around the 184.00 resistance level. Further bullish momentum may encounter resistance near the July 2015 low around 185.00, potentially paving the way for a test of the 190.00 threshold. Till we do not advise to buy GBP/JPY.

Sell Scenario: -

The GBP/JPY pair is experiencing fluctuations around the 181.30-40 level as it struggles to recover from its losses at the beginning of the week and fade the rebound observed in the previous week. This reflects the market's uncertainty and indecision ahead of important high-impact data from the UK.

Despite the recovery from an upward-sloping trend line originating from May 11, the GBP/JPY pair has been unable to surpass the key resistance zone around 182.15-40, which has been in place for about a month. This failure, coupled with an impending bearish crossover on the MACD indicator and the stable RSI (14) line, is attracting sellers to attempt another break of the multi-day support line located near 180.30.

However, before sellers can gain control, they may face obstacles in the form of the psychological level of 180.00 and the 200-day Simple Moving Average (SMA) around 179.90. Additionally, the monthly low near 179.45 may act as a downside barrier.

 Till we do not advise to sell GBP/JPY.

Support and Resistance Level: -

Support          Resistance  

S1 180.57   -  R1 182.14

S2 179.79  -   R2 182.93

S3 178.99  -   R3 183.71