GBPJPY recently broke below support at the 139.00 major psychological level then dipped to the 136.00 area before pulling up. Applying the Fib tool on the latest swing high and low on the 4-hour time frame shows that the 50% level lines up with the broken support, which might now hold as resistance.
This area also lines up with the moving averages, which usually hold as dynamic inflection points. The 100 SMA is below the longer-term 200 SMA so the path of least resistance is to the downside. Stochastic is heading south so GBPJPY could follow suit.
In that case, GBPJPY could eventually hit the lows at the 136.00 area or even go for new lows. A higher pullback could still find resistance at the 61.8% Fibonacci retracement level closer to the 140.00 handle.
Data from the UK was stronger than expected yesterday, as the GDP showed a 0.6% economic expansion versus the projected 0.5% growth figure and the previous period’s 0.4% reading. However, reports from Japan suggesting that the government is ready to dole out a larger economic stimulus package than initially expected drove the yen lower.
Price could continue to consolidate ahead of the BOJ interest rate decision, as traders refrain from taking any large positions ahead of the actual announcement. A conservative increase in stimulus could still lead to yen gains while an aggressive easing program could lead to sharp losses.
Prior to the actual BOJ statement, Japan is set to release its latest batch of inflation readings, along with retail sales and industrial production data. The outcome of these reports could set the tone for the central bank decision. There are no major reports lined up from the UK for the rest of the week.
By Kate Curtis from Trader’s Way