GBP/JPY: Can Cut Both Ways Around BoE ’Super Thursday’

Talking Points:

- GBP/JPY has posed a bounce from the Fibonacci support level that we looked at on Monday, and prices are resisting at the ‘s2’ zone of resistance that we’d looked at. As we approach a ‘Super Thursday’ rate decision out of the Bank of England tomorrow, setups exist on both sides of the pair. Shorter-term stances have the prospect of bullish continuation after the two days of strength, while longer-term stances can look at swing setups targeting a re-test of 147.03.

- Tomorrow’s BoE rate decision could be especially eventful considering recent developments: UK inflation has been moving-lower rather quickly, but the rate of inflation remains above the BoE’s 2% goal. So while there is an argument for hiking tomorrow, few are expecting a bank that’s shown a pattern of passiveness to actually do so in a more-pessimistic backdrop. More compelling, however, in the event of a no-hike rate decision is how hawkish the bank may be in the rest of the year. Remaining ‘Super Thursday’ rate decisions out of the BoE this year take place in August and November.

GBP/JPY BOUNCE FROM FIBONACCI SUPPORT

GBP/JPY has rebounded from the Fibonacci support that we looked at on Monday, and this came-in around a familiar level of interest at 147.03. That price is the 61.8% Fibonacci retracement of the 2012-2015 major move in the pair, and this isn’t the first time that level has helped to mark a low. This happened twice in Q4 of last year, in October and then again in December. Buyers were eventually able to grasp control, pushing prices up to fresh post-Brexit highs as we opened into 2018; but since then, matters have started to change rather quickly.

February brought a sell-off that lasted for more than a 1,000 pips as we moved into March; and then after a 76.4% recovery of that move, bears were back at it again to push prices right back down to 147.03.

GBP/JPY DAILY CHART: BACK TO 147.03 AFTER TUMULTUOUS Q1

On Monday of this week, we looked at the prospect of bearish continuation as we near the Bank of England’s Super Thursday rate decision, on the docket for tomorrow morning. Prices have moved into the second resistance zone that we were looking at, and given that we’ve seen a seller response ahead of the 150.00 psychological level, that setup remains workable as we move towards BoE. But – this isn’t the only setup showing in the pair right now, and I’d be remiss if I didn’t show you both sides of the argument, even if one of those might not directly agree with my personal bias.

THE BULLISH SIDE OF GBP/JPY

On the bullish side of the pair, GBP/JPY has been churning through higher-highs and higher lows since that support test at 147.03. This would open the door to a shorter-term scenario of bullish continuation that’s diametrically-opposed to the short-side continuation stance. For those looking to implement a bullish strategy on the British Pound or in GBP/JPY, the framework exists to do so.

This scenario would largely be looking for support to hold above the prior area of swing-high resistance and recent swing-low support around 148.00, producing an approximate 24-pip zone with which to watch for buyers to show their hand. This can open the door to stops placed below either 148.00 (aggressive) or 147.03.

GBP/JPY HOURLY CHART: HIGHER HIGHS AND HIGHER LOWS AFTER

THE BEARISH SIDE OF GBP/JPY

This was the side that we investigated on Monday, and what we were looking for then still applies. We had two areas of potential resistance, the first of which was very close to the new support area looked at above; but the second of those areas has come-in to help mark today’s highs. This zone runs from 149.14 up to 149.43, which is the 38.2% Fibonacci retracement of the February sell-off. This Fibonacci retracement has helped to produce a number of interesting resistance scenarios over the past couple of weeks, with swing-highs showing at each of the 61.8, 50, and 38.2% retracements.

GBP/JPY HOURLY CHART: SELLERS RESPOND TO RESISTANCE ZONE

The bearish approach on GBP/JPY can look for a move towards the 23.6% retracement at 147.74, after which that prior level of interest around 147.03 comes into play for secondary target potential. If that’s unable to hold, and if we do see sellers continuing to push through that support level, deeper targets may come into play running down to the 145.00 psychological level that previously helped to mark this year’s low in the pair.

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