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The GBPJPY fell by -0.67% to the close of the week as bulls pull back below the 166.00 level. The pair has been trading in an overbought region coinciding with the 168.00 resistance level. The UK economic data for March weighed down GBPJPY sentiment as data missed estimates. The retail sales MoM data fell to -0.9% vs -0.5% surveyed, while Retail Sales YoY remained at -3.1% as expected.
The risk-off sentiment also lifted the Japanese Yen as investors took safety to the end of the week. The labour market in the UK indicated weakening numbers underpinning the weakness in the Pound. Looking at EURGBP, a proxy of pound strength extended a rally to a 6-week high having a +0.47% gain on Friday.
However, bulls could be interested in buying the “dips” as policy divergence between the BoE and BoJ continues to favour the GBPJPY bulls in the long term. The UK CPI YoY for March came in at 10.1% vs 9.8% forecasted, while Gfk Consumer Confidence in April rose to -30 vs -35 anticipated. The possibility of the BoE hiking rates by a quarter basis point continues to rise as inflation remains in a double-digit. Therefore, a close above the 166.00 level could cause bulls to rally towards the 168.00 high.
Weekly Chart Analysis
The GBPJPY gave up its weekly gains as investors retract from the 168.00 level. The pair has been trading inside a rising channel and bulls could extend their targets if the 168.00 resistance level is breached. The next key level to watch out for is the 172.00 level. Looking at the MACD, the indicator suggests the pair is currently in a bullish trend as volume bars trade above the 0.00 benchmark.
However, a break below the 162.800 level, coinciding with the 50-day moving average could cause the pair to suffer extended losses. The next critical support will be the 155.500 level, a yearly low. Further below that support is the 148.29 level which coincides with the 200-day moving average, dynamic support and resistance.
The ActivTrader Sentiment tool suggests that 90% of Retail Traders are bearish on the Pound as UK data triggers risk aversion. The weak retail sales released early Friday morning made investors run for cover as it raises recession fears. The Japanese Yen experienced parabolic gains for two consecutive days following positive Trade balance data amidst a stable inflation print.
However, UK inflation data released earlier this week suggests the BoE could intervene on policy. The inflation data came in at 10.1% vs 9.8% surveyed suggesting that inflation remains a cause for concern in the near term. This could widen the policy divergence between the two central banks.
Daily Chart Analysis
The GBPJPY extended its 2-day losses as bulls trade back below the 166.00 level, the 2023 high. The pair is currently in a corrective pattern as the trend has been overbought. The RSI indicator suggests that the bulls are losing steam as it breaks away below the 70 range. Bears could target the 158.500 level if they break below 165.20, coinciding with a Bollinger Band Baseline.
However, bulls could experience a rebound if markets remain above 165.20, a 10-day low. Upside gains are capped by the 168.00 level, and a break above that level could reinforce the outlook towards the 170.00 and 172.00 levels.
