GBPJPY, Time for Correction?
GBPJPY Has Been Very Bullish for the Last Time, When Will it Be Retraced?
The bullish trend for GBPJPY does not need to be doubted. This pair successfully closed bullish for the last 5 weeks. This was partly due to the policy of the Bank of England (BoE) which increased the UK interest rate from 0.10% to 0.25% last December. On the other hand, there was a tightening of the economy in Japan, especially in terms of public spending, even before the Omicron happen. Japanese government data showed household spending fell 1.3% in November from a year earlier and down 1.2% from the previous month. But in recent times, the UK economy has also shown a brief downturn, with debit and credit card spending dropping 40 percentage points from the previous week to 86% from the average level in February 2020, which was before the COVID-19 pandemic. So, will GJ continue to rise or is there a possibility for a correction?
Quick Recap on GBP/JPY
GBPJPY has increased more than 100 pips since the beginning of the year, and may soon hit its highest level since October last year.
Let's dive in a little deeper to see how GBP/JPY fare on multiple timeframes:
GBP/JPY Monthly Technical Analysis
Since the beginning of 2021, GBPJPY does look bullish and the last few months have been in a consolidation area between 149,700 to 156.00 from a monthly perspective. Prices are still moving around the 100 MA with last December's candle closing bullish thanks to the hawkish BoE policy for the UK economy. But last month's candle still closed below the 156 resistance. Can the January candle close above the 156.00 area? Maybe it's too early to predict.
GBP/JPY Weekly Technical Analysis
The weekly timeframe shows a strong bullish sentiment. GBPJPY closed bullish for the last 5 weeks and moved above the 50, 100, and 200 moving averages. In addition, GJ is still supported by the weekly uptrend line that formed since May 2020. Now GBPJPY's weekly candle looks to be testing weekly resistance at 157.00.
GBP/JPY Daily Technical Analysis
Meanwhile, on the daily timeframe, GBPJPY closed bearish engulfing on Thursday, and closed weakly bullish last Friday. This indicates that GJ may have difficulty breaking through its highest level since October 2021. Moreover, the price has moved too far from the 50, 100, and 200 moving averages which are seen moving in the 152,800 range.
Trading idea for GBP/JPY
On the H4 timeframe, we can see a fake-out forming after GJ broke the resistance at 157,430 but failed to make a higher low, but instead broke the support at 156,750 and formed a new lower low. There is a possibility that GJ will correct in the short term by forming a new lower high and down to the next support.
Order: Sell Limit
Stop Loss: 158.000
Target 1: 156.750 (50% + BE)
Target 2: 156.000 (25%)
Target 3: 155.300 (25%)
Risk total: 0.5-1% Equity (High Risk Setup)
Reason: Quasimodo Level/Head & Shoulder pattern.
ZFX Analyst’s Predictions
The BoE's move to become the first major central bank to increase interest rates post-pandemic certainly brought appreciation to the Pound. On the other hand, the real effective rate of the Yen has indeed fallen to its lowest level in 50 years, reducing the purchasing power of Japanese consumers and increasing the risk of capital flight to other countries. However, the safe-haven nature of the Japanese Yen will still be the investor's favorite amidst Omicron's uncertainty. Japan's Finance Minister, Shunichi Suzuki, also said he would take immediate action to stabilize the yen's depreciating value. Coupled with the technical pattern as discussed earlier, it gives GJ the reason for the possibility for GJ to be corrected from its bullish trend.
Risk Warning: The above content is for reference only, and does not represent ZFX’s position. ZFX does not assume any form of loss caused by any trading operations carried out in accordance with this article. Please be firm in your thinking and do the corresponding risk control.
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