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    GBP/JPY testing key support ahead of UK CPI

    Given the lack of macroeconomic data it is understandably a quiet day in the markets. Things should pick up rapidly by tomorrow however as we have a number of high-impact data releases to look forward to, starting with the UK inflation estimates for March. Last month saw the headline year-over-year CPI reading fell to zero in February from 0.3% in January while core CPI eased to 1.2% from 1.4%. This time however, both measures of CPI are expected to have remained unchanged. Thus, anything else and we could easily see a sharp move in the pound, especially if the actual numbers deviate significantly from the expected readings.

    But after last week’s rally in the dollar which came despite the abysmal jobs report for March, suggesting that the greenback has further room to the upside, any potential strength in the  pound could be most apparent in one of the GBP crosses – in particular the EUR/GBP and GBP/JPY – rather than the GBP/USD.

    In fact the GBP/JPY is testing a key technical area, so what it does next could potentially determine the direction for the remainder of the week. As can be seen on the chart, the bears earlier tried to push rates below 175.50 – the low from February. But so far their attempts have proved futile. Another level also worth mentioning is the 61.8% Fibonacci retracement level (of the XA swing) at 176.30 which has also generally held up well thus far. Thus, given the technical importance of this 175.50-176.30 area, a potential rally from here should not come as a surprise. That said however, a closing break below 175.50 may lead to further follow-up technical selling towards the 172.65/90 area which is where the 78.6% retracement of the XA swing meets the 127.2% extension of BC swing. The near-term resistance levels to watch are 177.15 (previous support), 178.45 (200-day SMA) and 179.05 (prior high). A potential break above 179.05 would be a particularly bullish outcome.

    Figure 1:

    Source: FOREX.com

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