GBPJPY showed increased downside momentum recently, as price broke below a major support zone and dipped close to the 181.00 mark. The pair seems to be in the middle of a retracement right now, as price pulled up to the broken support at the 184.00 major psychological level.
The resistance seems to be holding so far, as price is having a difficult time breaking past the 61.8% Fibonacci retracement level. At the same time, stochastic is moving down from the overbought zone, indicating a buildup in selling pressure.
If the drop resumes, price could head back to the former lows around the 181.50 minor psychological level or perhaps create new ones below 181.00. Risk aversion seems to have settled in the financial markets, which makes the path of least resistance to the downside for this pair.
On the other hand, a break past the 184.00 handle could lead to a test of the next resistance at the 185.00 major psychological mark. A move past this area could mean that a reversal is underway and that buyers are taking control.
Previous data from the UK suggests that the economy could see a bit more weakness moving forward, as the services PMI showed a drop in February. This means that the sector could contribute a smaller amount to overall economic growth this quarter.
However, BOE officials remain upbeat that the drop in inflation would encourage consumers to spend more, eventually spurring stronger economic growth. Economic data has yet to confirm that this phenomenon is taking place, although hiring trends have been positive so far.
As for Japan, data has been mostly weaker than expected, leading traders to speculate that the Japanese central bank might ease monetary policy once more. Spending and inflation reports have continued to disappoint, as the economy hasn’t recovered from the April sales tax hike yet.
By Kate Curtis from Trader’s Way