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The GBPJPY rallied by +0.50% making its 4th day of gains towards the 162.500 level ahead of emergency talks by UK Prime Minister Truss and UK Chancellor Kwarteng with the UK’s fiscal watchdog. The UK OBR confirmed preparing the forecast for November 23 fiscal statement.
Moreso, the rise in UK’s Q2 GDP data helped lift sentiment in the near term. The GDP YoY came in better-than-expected at 4.4% against 2.9% expected while GDP QoQ for Q2 rose to 0.2% versus -0.1% surveyed. The UK’s Current Account Balance sheet was at -33.8B from a -43.8B forecasted, lifting the bullish outlook for Pound bulls in the near term.
However, there remain downside risks as Japan’s economic docket delivered better-than-expected. The Retail Sales YoY for August rose to 4.1% against 2.8% surveyed, while industrial Production surged to 2.7% against 0.2% forecasted giving strength to the Japanese Yen.
Traders should pay close attention to the Tankan Large Manufacturers Index data for Q3 and Tankan Large Non-Manufacturers index due for release on Monday. Furthermore, UK’s Manufacturing PMI and Nationwide HPI (September) will be critical data to watch in the coming week.
Weekly Chart Analysis
The GBPJPY whipsawed from the 148.800 support level as bulls target the 167.500 level high. The bulls bounced off an 18-months low and upside gains are currently capped by the 162.500 level, coinciding with a Bollinger Band Baseline. A break above that level could cause a further rally towards the 167.50 level. The Stochastic RSI indicates that the pair has recovered from an oversold level and the possibility to trade higher has increased.
However, a failure to break above the 162.50 level could cause selling pressure on the pair towards the 155.500 level, near-term support. There remains a weakness in the pound if bulls close below the 162.500 level. A break below 155.500 could reinforce selling pressure towards the 148.50 level.
The ActivTrader Sentiment tool indicates that 58% of retail traders have become bearish on the GBPJPY. The traders could be speculating that the British government will now backtrack on interest rates. The UK Prime Minister Truss’ support for the UK Tax cuts plan remains negative for the pair.
However, the UK economy continues to show signs of resilience and growth as indicated by the 2nd Quarter GDP data. The GDP data rose to 0.2% against -0.1% forecasted, a surprise improvement meaning a better economic position than previously feared. Markets are closely watching UK Prime Minister Truss and Chancellor Kwarteng’s emergency meeting with UK OBR later in the day.
Daily Chart Analysis
The GBPJPY rallied for 4-days straight recovering losses from a yearly low at 149.000 support level. Bulls are currently facing a barrier at 162.00 resistance, coinciding with a 50-day moving average. A break above that level could reinforce the bullish outlook toward the 167.500 level. The RSI indicator is currently trading at a 50.00 level suggesting that the pair has reached a market pivot point. A break above the 50.00 level could cause buyers to seek higher prices in the near term.
However, the pair may retrace towards the 156.00 level if bulls fail to break above the near-term resistance. Bears could regain control below the 162.00 level as price trading below the 200-day moving average and 50-day moving average indicates long-term bearishness.
