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GBP/JPY rally falters at 188.00, broader trend remains positive

by SuperiorInvest


GBP/JPY rally falters at 188.00, broader trend remains positive

  • Sterling’s rally stopped below 188.00 with the bullish trend intact
  • Hopes of a dovish BoJ weigh on a deeper yen recovery.
  • Strong UK CPI dampened hopes of a BoE cut and strengthened the pound across.

Sterling is undergoing marginal losses on Thursday, with the pair reaching heavily overbought levels after Wednesday’s strong appreciation. That allowed the battered Japanese yen to pare some losses, even as the broader trend remains bullish.

The pair is consolidating gains, with downside attempts limited above 187.30 so far. A stronger-than-expected UK Consumer Price Index (CPI) released on Thursday poured cold water on the BoE, which moderated expectations and boosted the GBP overall.

Conversely, the Bank of Japan is widely expected to maintain its ultra-loose policy at next week’s meeting. Low CPI levels in Tokyo and weak wage growth seen earlier in January suggest a weaker inflation report later that will ease pressure on the Bank of Japan to normalize Monetary Policy.

Data released today showed that orders for Japanese machinery fell significantly more than expected in November, adding to negative pressure on the yen.

GBP/JPY remains bullish and is targeting levels above 188.00

Technical indicators continue to point higher, with the current decline seen as a correction from overbought levels. The pair remains stable above previous highs, with support levels at 186.90 and 186.10 likely to sustain the bears.

On the upside, the 188.00 area is the 161.8% Fibonacci extension of the early January rally, often a significant resistance level. This is where the December high, 189.65, and the 190.00 area come into play.

Technical levels to watch

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