In the rapidly evolving forex market, the GBP/JPY currency pair has been exhibiting considerable volatility since October 2024, following a significant breakout above the 208.00 mark. The pair’s dramatic retraction observed in the latter part of July and August was attributed to the unwinding of carry trades, a financial strategy where investors borrow in a currency with a low-interest rate to fund investments in a currency yielding a higher interest rate, thus profiting from the difference.
As market participants navigate these turbulent waters, recent economic indicators from both the United Kingdom and Japan have provided crucial insights. The Bank of England, in its latest monetary policy meeting, opted to maintain its benchmark interest rate. However, the decision was accompanied by a dovish sentiment that caught markets off-guard, as three out of the nine-member committee advocated for an interest rate cut. This move underscores the growing apprehensions regarding the weakening of the UK’s Gross Domestic Product (GDP) amidst persistently high inflation levels, hinting at underlying economic challenges.
Across the globe, Japan reported a stronger-than-expected inflation rate of 3.7% year-over-year, slightly exceeding the anticipated 3.6%. This development is particularly noteworthy given the Bank of Japan’s prolonged struggle to stimulate persistent inflation over the past two decades, despite the economy showing signs of recovery amidst ongoing weaknesses.
For traders specializing in the Japanese yen, keeping an eye on the 2-Year Japan Government Bond Yield (denoted as JP02Y on TradingView) serves as a barometer for shifting expectations regarding potential interest rate adjustments. The yield on 2-year government bonds closely mirrors the central bank’s policy rate expectations, offering valuable clues about future monetary policy directions.
Amid these unfolding economic scenarios, our comprehensive review delves into the intricacies of trading the GBP/JPY pair within the current market conditions. We specifically focus on the technical analysis derived from both daily and 4-hour chart perspectives, illuminating the strategic plays available to traders.
At present, the GBP/JPY pair finds itself in the limelight, trading within an intermediate resistance zone. This positioning arises from the Japanese yen’s softening, attributed to the Bank of Japan’s lack of a hawkish tone, contrasted against a relatively more dovish stance from the Bank of England. The daily moving averages remain relatively flat, hovering around the pivotal 193.00 mark, reinforcing the pair’s trend of trading within a defined range.
An analysis of the daily chart reveals the Relative Strength Index (RSI) positioned above the neutral 50 mark, signaling a stronger buying interest since late May. It’s vital for traders to monitor key zones of interest:
Daily Resistance Zones:
- Intermediate Resistance: 195.00 to 196.85 (current level)
- Main Resistance: 199.00 to 200.00
Daily Support Zones:
- Main Pivot: 193.00 (currently acting as support)
- Intermediate Support: 188.00 – 190.00
- Main Support: 184.00 – 185.00
Zooming into the 4-hour chart, the GBP/JPY pair’s uptrend appears volatile yet contained within the specified range. A notable feature is the pair’s repeated challenges at the intermediate resistance zone, where it currently trades. The 4-hour RSI suggests potential reversals, awaiting confirmation through price movements.
Market bears are keen on breaching the 4-hour 50-period moving average at 195.53, aiming to revisit the FOMC 194.00 lows to affirm a rejection at the top of the range. Conversely, bulls strive to preserve the ascending trendline, targeting a retest of the January 2025 highs around the 198 level, just shy of the main daily resistance zone.
In summary, navigating the GBP/JPY currency pair demands a keen understanding of the evolving macroeconomic landscape, coupled with astute technical analysis. As markets react to shifts in monetary policy stances and economic indicators, traders are well-advised to stay informed and approach these dynamic opportunities with meticulous risk management strategies for safer trading endeavours.
