Even though GBPJPY suffered a sharp selloff in the past few weeks, the longer-term uptrend on its daily chart is still intact for now. Price is currently testing the bottom of the rising channel and might be due for a bounce.
Stochastic and RSI are both on the move up, with the former indicating a slight bullish divergence. Also, the 100 SMA is above the longer-term 200 SMA, which means that the path of least resistance is to the upside.
A move higher could lead to a test of the channel resistance around 205.00 or a climb until the mid-channel area of interest at 195.00. However, a break below the channel support around 180.00 could mean that a longer-term selloff is in order.
Earlier this week, the UK printed a much weaker than expected services PMI, leading to a sharp pound selloff as the sector accounts for a huge part of overall economic growth. However, the upcoming BOJ statement could turn it all around if the policymakers share a dovish monetary policy bias.
The previous BOJ statement was already on the cautious end, although central bank officials highlighted the strength of Japanese exports and its positive spillover effect on production. Recent data from Japan has failed to support this claim though, as most manufacturing and industrial production readings have come in below expectations.
Other event risks include the BOE interest rate statement later on in the week, followed soon after by the release of the MPC meeting minutes. No actual monetary policy changes are expected for now but a shift to a less upbeat stance might mean more losses for the pound. On the other hand, if BOE Governor Carney reiterates their rate hike projections for early next year, the UK currency could erase its recent losses.
By Kate Curtis from Trader’s Way