Most traders are aware of the rout that the US dollar is carving into the Japanese yen and the British pound. Since the beginning of March 2022, the USD has appreciated against the yen by 11% and 7% against the pound.
Naturally, with their respective performances against the USD, the pound has strengthened against the yen since the beginning of March. Let us take a look at the technical and fundamental perspective of the GBP/JPY pair moving forward.
GBP/JPY: The Daily Perspective
Some long candles have recently begun presenting themselves in the GBP/JPY daily chart, pushing and pulling this pair across a significant range over each trading session. This week, GBP/JPY has swung between 156.30 and 161.80.
As of writing, the GPY/JPY is trading at 159.200. This level aligns closely with a resistance level from three previous highs going back to October 2021. The GBP/JPY blasted through this resistance quite emphatically on March 22, and then slowly trended up to a peak of ~168.00 within a month.
Pessimism in the UK economy set in, as the Bank of England warned of a potential recession, and the GBP/JPY gave up a good chunk of gains. At the same time, the pound hit a 2-year low against the greenback.
Even so, traders are still aware of the ultra-accommodative policy of the Bank of Japan. Thus, any potential dovishness from the Bank of England in response to the fear of recession is unlikely to reach the levels exhibited by the Bank of Japan. This fundamental factor may help to morph the 158.00 level, once a persistent resistance level, into a firm level of support moving forward.
GBP/JPY: The 2-Hour Perspective
In the short-term, we might expect some range-bound trading in the GBP/JPY. The Average True Range indicator, on a 2-hour chart, shows weak buying and selling pressure. A bias for a tight range between 158.00 and 162.00 might be desired for a GBP bull. A bear may extend that lower bound down to 155.00 in substitution for 158.00.
