Sterling has been a rollercoaster ride lately, with apparent flip-flopping by Bank of England Governor Carney prompting UK Treasury member Pat McFadden to accuse him of behaving like an “unreliable boyfriend” (for more on Carney and the fundamental outlook for the GBP/USD, see my colleague Kathleen Brooks’ note from earlier today).
With Carney taking to the podium again tomorrow to discuss the BOE’s Financial Stability Report, it’s a good time to update our outlook and levels to watch on the GBP/JPY.
Like the GBP/USD, GBP/JPY’s rally has lost most of its momentum over the last week. As we go to press, the pair is testing its two-week low around 172.75, which also approximates the 38.2% Fibonacci retracement of the most recent rally near 172.90. More concerning for bulls, rates have carved out an apparent head-and-shoulders pattern over the past week. This classic technical pattern shows a shift from an uptrend (higher highs and higher lows) to a downtrend (lower highs and lower lows) and is confirmed now that GBPJPY has broken conclusively below the neckline.
Beyond the price action pattern, we can see that the MACD is also trending consistently lower and recently crossed below the “0” level, showing strongly bearish momentum on this timeframe.
If the bears are able to conclusively overcome the support level at 172.75, further weakness toward the head-and-shoulders measured move target around 172.00 will be favored; this level also represents the 61.8% Fibonacci retracement. Of course, if Carney flips back to a hawkish stance tomorrow, the GBP/JPY may bounce meaningfully, with bulls potentially targeting the right shoulder top at 1.7370.
Key Economic Data / Events that May Impact GBP/JPY This Week (all times GMT):
Thursday: BOE Financial Stability Report and Carney Speech (9:30), JP Household Spending and Tokyo CPI (23:30), JP Retail Sales (23:50)
Friday: UK Current Account and Final GDP (8:30)