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GBP/JPY: A Major Test Below

By MarketPulse (Craig Erlam)ForexDec 03, 2021 03:54PM ET
GBP/JPY: A Major Test Below
By MarketPulse (Craig Erlam)   |  Dec 03, 2021 03:54PM ET
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It’s been a rough time for the pound, particularly against the yen and this week has seen it cross into bearish territory.

The pair had been on a strong uptrend, but a weakening of the UK economy and pared-back interest-rate expectations for the Bank of England started the decline from the highs which was finished off last Friday by the Omicron announcement.

Since then, it’s been on a sharp downward trajectory, and now, having fallen through major support levels, it’s a case of how far can it drop. Of course, this depends heavily on the scientific data on the new variant in the coming weeks. But for now, it’s not looking good.

British pound/Japanese yen daily chart.
British pound/Japanese yen daily chart.

The good news is that it is running into support at the end of the week. Long-term support around 148.50, held for most of this year, stands in the way of the pair potentially plunging, given the psychological blow it would deliver. Not to mention the stops that may be triggered as a result of it being long-term support.

A rebound from this level would be interesting as, despite recent momentum slowing, which is evident from the divergence on the 4-hour chart, there has been significant momentum on the longer time frames, which suggests 148.50 is going to be seriously challenged. That could mean a shallow correction.

The first test will be 150, from a psychological perspective, followed by 150.75-151, where the pair recently saw support and resistance. This may also coincide with the bottom of the descending channel.

Above, the 151.50-152.50 region is key. Not only does this fall around the 200/233-day SMA band, but it also falls around the 50/61.8 fib levels of the mid-November highs to the recent lows (which could become lower and alter these levels slightly).


GBP/JPY: A Major Test Below

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GBP/JPY: A Major Test Below

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