GBP/JPY has recently pulled back to around 197.35 after hitting an almost six-month high near 198.20 just last week. The currency pair is still looking to build its gains as it rises through the ascending channel. This move comes after a clean breakout from the Ascending Triangle pattern on the daily timeframe. That breakout has already produced very bullish trading behavior including wider ticks and accumulation by institutions very heavy on the upside.
Some bullish analysts are looking for GBP/JPY to climb even higher towards the natural psychological resistance at 200.00 level. If it breaks above Monday’s high of 198.20, there’s potential for it to reach the July 23, 2024 high of 203.16. Technical indicators are showing bullish signs, but a break above strong resistance levels will be critical to continuing upward movements.
Technical Analysis Overview
The technical landscape for GBP/JPY features a clearly defined resistance level set by the May 14 high of 196.41. This horizontal resistance is a key battleground that will dictate whether the pair’s next moves come from the upside or downside.
An upward-sloping trendline drawn from the May 22 low of 191.90 adds bullish corroboration. The updated trendline indicates none of the above, as the latest price movements are all pointing in an upward direction. This upward trend would help sustain any future rallies.
A 14-day Relative Strength Index (RSI) has soared past the extremely crucial 60.00 threshold level. This increase increases the positive sentiment in favour of GBP/JPY. If the RSI manages to hold above this line in the sand, it can potentially indicate new bullish momentum flooding into the market.
Market Influences
The story on recent movement in GBP/JPY is much the same. Much of this has been driven by an oscillation in oil prices. The Japanese Yen (JPY) has recently appreciated drastically. This increase follows a dramatic dip in oil prices caused by the announcement of a ceasefire agreement between Israel and Iran. Japan has become increasingly reliant on oil imports. Further supporting this GBP/JPY bearish picture is the fact that falling energy prices translate to Japan’s trade deficits narrowing, making the Yen more appealing.
Pound Sterling has fared quite better against its major counterparts, with the notable exceptions of some Asia-Pacific currencies. Economic news from across the Atlantic are pouring in with positive signals from across the pond. This is most clearly reflected in June’s early S&P Global Purchasing Managers’ Index (PMI) data. The Services PMI surged to 51.3, from May’s 50.9. In contrast, the Manufacturing PMI continued to decline at a slower pace, coming in at 47.7, which was more positive than anticipated.
Increased mixed PMI data layers bullish short-term economic sentiment into the Pound, which adds to the extreme bullish volatility in GBP/JPY trading today.
Potential Risks Ahead
While the present sentiment is clearly positive, analysts warn that GBP/JPY may struggle if it breaks through key supports. If the price falls beneath the May 6 low of 190.33, the pair may be subject to further downside. Potential target levels would be March 11 low at 188.80 and February 7 low at 187.00.
Moving forward, the market will be particularly attuned to the unfolding geopolitical picture and other key economic indicators. In combination, these matters could supercharge any underperformance of GBP/JPY.