GBPJPY- Troubled Waters Ahead But Steady as She Goes
Heading into 2014 trade, our focus was on the diverging monetary policy outlooks across the globe with GBPJPY targeted higher while above 147.50-148.50. The pair remained largely range-bound throughout the year before staging a sharp rally in the fourth quarter to achieve our objective target at 184-188.27 in early December trade. The GBPJPY is poised to close 2014 up more than 9% and as we look ahead to 2015, the broader fundamental picture remains unchanged.
Despite the December election, the BoJ may have little choice but to further expand its asset-purchase program as the weakening outlook for the Asia/Pacific region threatens the central bank’s scope to achieve the 2% inflation target over the policy horizon. However, as BoE Governor Mark Carney continues to prepare UK households & businesses for higher borrowing costs, the GBPJPY outlook remains unchanged on account of the continued diverging policy stances. That said, the technical picture looks more precarious as the pair eyes resistance into the close of 2014.
GBPJPY is trading with the confines of a well-defined pitchfork formation off the 2009 low with the median line catching the highs in early 2013. Interestingly enough, price action compromised this threshold on the approach into our objective at 184-188.24. Note that the weekly RSI signature is now coming into the former support trigger and may cap the advance in the medium-term. That said, the breach cannot be confirmed while within this zone and the potential for a near-term correction heading into the start of 2015 is a real threat.
Initial support is eyed at the former 2014 opening range highs at the 175-handle which converges with channel support in 1Q of 2015. The outlook remains constructive while above key support at 168.11 – 170.40 with a move below this region challenging the broader rally off the 2011 lows. Bottom line: looking for a broad pullback in 2015 to offer more favorable long entries with a confirmed breach of the 184-188.27 resistance zone eyes subsequent topside resistance objectives at 199.80 & 208.20.
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