The GBPJPY currency pair, also known as the Dragon, is holding firm at a seven-year as the cross continues to thrive and bask in the glory of the weakened Yen. The Dragon is having a bullish Tuesday morning trading session following the release of Japan’s unemployment data for April, which showed that unemployment for the month declined to 2.6% month-on-month from 2.8% in March, against the expectations of a decline to 2.7%.

The cross has been heavily underpinned by the monetary policy differential, with the markets firmly expecting the Bank of England (BoE) to continue its monetary policy with the economy’s inflation rate of 8.7%, firmly above the bank’s target of 2%. The British Pound could continue chipping away at the Yen’s ground, with the BoJ’s firm on the decision to continue with the ultra-loose monetary policy.

Technical

A rising wedge trading pattern has formed as the bears look to intensify their fightback against the bulls, with the bulls determined to continue pushing the price action above yearly highs. The bulls could be hoping the monetary policy could continue to push the price higher, with the 173.973 acting as a significant level of interest for the bulls. The breakthrough level would boost the push towards the 174.780 resistance level. The fall of the 174.780 level would bring the resistance level (R4) at 175.511 into play.

However, should the resistance of the wedge hold, a potential for a pullback exists, with the 23.60% Fibonacci retracement level acting as a significant barrier for a move lower. A break below the Fibonacci level could trigger a selloff towards the 171.246 support level lower.

Summary

The Dragon has been under strong bullish momentum firmly supported by the monetary policy divergence bets, which has seen the cross reach a new seven-year high. Price action closing above 173.973 would boost the bulls’ charge towards 174.780. However, the failure to break above the resistance level of the wedge would leave the potential for a major pullback towards the significant support levels below in play.

Sources: TradingView, Reuters.

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