GBP/JPY Technical Analysis: Tug-of-War at the ’Brexit-Low’
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- GBP/JPY Technical Strategy: Longer-term down-trend attempting to carve-out higher-low support.
- After the out-sized reversal in the Yen followed by the monetary bazooka triggered by the BOE, GBP/JPY saw a big move lower, but respected the longer-term lows that printed in the week following the Brexit referendum.
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In our last article, we looked at GBP/JPY price action near a confluent support-zone in the 135-region. And given that a large portion of that movement-lower took place after the Bank of Japan had underwhelmed at their most recent rate decision, it made sense that we were likely seeing stimulus bets come out of the Yen. But with a Bank of England rate decision carrying a near-100% probability of a rate cut in the days following, it also made sense not to push a ‘square peg into a round hole’ by trying to buy GBP-assets ahead of that announcement.
The Bank of England did not disappoint: They unrolled a veritable bazooka of stimulus with more than even the most aggressive forecasts were looking for. And as many would expect, this brought-on a quick dose of GBP-weakness, sending GBP/JPY flying below the ‘Brexit low’ at 133.20; which had held as ‘swing-low’ support in GBP/JPY until the week following Brexit, in which Mark Carney drove the Sterling lower by talking-up proactive rate-cuts for the economy on the heels of the referendum.
To close last week, price action in GBP/JPY had trickled back up to 133.20 to find near-term resistance. And the open this week saw prices gap above this level, only to move down to find short-term support at old resistance.
While many are still extremely bearish on GBP given the expectation for even more rate cuts down-the-road, the possibility still exists for the Bank of Japan to ramp-up their stimulus program, and any clues, hints or innuendo of such a theme from Japanese politicians/Central Bankers will likely re-fire this prospect. This was a large driver behind the theme of Yen-weakness in the first half of July, and while the BoJ underwhelmed at their most recent meeting, this certainly does not preclude the bank from doing more in the future; and we’ll likely see market participants building expectations for such a theme as we move towards the bank’s next meeting in September.
Created with Marketscope/Trading Station II; prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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