Over the last three trading weeks, the GBP/JPY pair has depreciated by more than 3%, establishing a firm bearish bias in favor of the yen in the short term. This perspective has remained intact primarily due to growing expectations of a more dovish monetary policy from the Bank of England, which left its interest rate unchanged at 4.5% in its latest meeting. Markets now anticipate a 25 basis point rate cut at the upcoming May 8 meeting, potentially bringing the rate down to 4.25%.
This expectation is supported by the fact that inflation in the UK currently stands at 2.6%, close to the central bank’s 2% target, further justifying the possibility of additional rate cuts in the short term. Lower interest rates in the UK reduce the appeal of GBP-denominated assets, which in turn can drive selling pressure on the pound.
Safe-Haven Demand for the Yen
It is also important to note that the Japanese yen is historically seen as a safe-haven currency, due to its relative stability compared to other major currencies. As the global tariff conflict intensifies and economic growth prospects weaken, demand for the yen is likely to increase further in the short term. This dynamic could lead to continued downside pressure on GBP/JPY.
Broad Sideways Channel Still Intact
Since August 2024, GBP/JPY has traded within a well-defined sideways channel, with resistance around 198.676 and support near 186.932. Recent bearish moves have not been strong enough to break below this key support, suggesting that this lateral formation remains the dominant structure for upcoming sessions.
Indicators Show Growing Neutrality:
Key Levels to Watch:
Written by Julian Pineda, CFA – Market Analyst
This expectation is supported by the fact that inflation in the UK currently stands at 2.6%, close to the central bank’s 2% target, further justifying the possibility of additional rate cuts in the short term. Lower interest rates in the UK reduce the appeal of GBP-denominated assets, which in turn can drive selling pressure on the pound.
Safe-Haven Demand for the Yen
It is also important to note that the Japanese yen is historically seen as a safe-haven currency, due to its relative stability compared to other major currencies. As the global tariff conflict intensifies and economic growth prospects weaken, demand for the yen is likely to increase further in the short term. This dynamic could lead to continued downside pressure on GBP/JPY.
Broad Sideways Channel Still Intact
Since August 2024, GBP/JPY has traded within a well-defined sideways channel, with resistance around 198.676 and support near 186.932. Recent bearish moves have not been strong enough to break below this key support, suggesting that this lateral formation remains the dominant structure for upcoming sessions.
Indicators Show Growing Neutrality:
- MACD:
The MACD histogram is currently sitting around the neutral 0 line, indicating that the average momentum of recent moving averages remains in balance, with no dominant force in either direction. - RSI:
A similar situation is seen in the RSI, which is hovering near the neutral 50 zone. This reflects a constant balance between buying and selling pressure.
Together, these indicators suggest persistent neutrality, likely due to the strong support zone that the price is currently testing.
Key Levels to Watch:
- 190.14: A near-term resistance level, aligned with the Ichimoku cloud barrier. A bounce toward this level could reactivate short-term bullish momentum.
- 192.493: A significant resistance, located at the convergence of the 100- and 200-period moving averages. A return to this area could reinforce the validity of the sideways channel still visible on the chart.
- 186.93: Key support level, located at the lower boundary of the broad sideways range. Bearish moves that manage to break below this level could mark the beginning of a much more significant downtrend in the upcoming sessions.
Written by Julian Pineda, CFA – Market Analyst
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.