Sterling has been on a monster tear after mixed employment data out of the United Kingdom. Average earnings beat expectations of 2.6 percent, printing a 2.9 percent.
However, the U.K. did see a rise in unemployment even as the unemployment rate fell a tenth-percent.
Traders are looking to front from any potential talk out of the Bank of England (BoE) that could hint at a potential rate hike. BoE Governor Mark Carney still pressed that a decision to address interest rates would not be made until the end of the year, likely to figure out how financial markets react to an anticipated hike from the Federal Reserve.
The yen saw pressure, along with the dollar, as risk assets continued their second day of rallying into tomorrow's FOMC minutes meeting and pressure conference (which tends to be the case).
Without a doubt, their will be a good deal of volatility, and it will largely coincide with what Fed Chair Janet Yellen foresees in the near future in regards to the U.S. economy and the potential trajectory of interest rates.
As seen in the early '90s, the Fed could raise rates (although, I doubt they would) and the dollar could actually decline. Depending on how the yen reacts, GBP/JPY could potentially break out of an inverse head and shoulders pattern.
Price action have jumped up to the neckline on the 4H chart, but there are a few key things to consider:
1. It is always prudent to wait for a close above the neckline, as a false breakout will suck in traders.
2. The neckline also lines up with a well-established supply zone on the intraday charts.
If price action meanders too long in the supply zone (blue rectangle), momentum could wane causing the pair to retreat.
Conversely, if GBP/JPY can close above 187.65 then the pair could attempt 188.55 and 189. If not, a retrace to 186 could be warranted.
Side note: considering that the VIX is currently trading within a descending wedge (bullish reversal), it possible that heightened volatility will strengthen the yen.
