After a sustained period of upward momentum, the GBPJPY currency pair was hit by a substantial pullback in the Thursday session, as speculation arose that the Bank of Japan would discuss a tweak in its ultra-loose policy when they met for their monetary policy meeting on Friday. The volatility did not stop there, though, as the BoJ opted to stick with its ultra-loose policy with a slight twist in its outlook.
On Friday, Japan reported its year-over-year Tokyo CPI, which came in at 3.2%, an unexpected rise from the prior 3.1%, against the 2.8% forecast. The Tokyo Core CPI was at 3%, down from the preceding 3.2%, but not as much as the market expected, with a consensus of 2.9%. With inflation still above its 2% target, the BoJ left interest rates unchanged. However, it signalled a more flexible approach to managing its yields, which boosted the Yen in another high-volume selloff in the Friday session.
Technical
On the 4H chart, the bearish momentum broke down an ascending channel, eventually finding support at 177.315. With the price action looking to recover its intraday losses, the resistance at 178.815 could be critical in the upcoming hours, as the price action is pushing for a break above.
A sustainable breakthrough at this resistance could trigger a longer retracement toward the daily pivot point at 179.237, with higher resistance established at 179.846. With little economic news flow remaining for the week, it could be challenging to sustainably move higher. Still, a retest of the breakdown level at the channel remains a possibility in the upcoming trading days.
If the market resists at 178.815, the retracement could come to a halt, leaving the support at 177.315 vulnerable again. A breakdown there could see the price action trickle down to 176.548 (S1) and 175.390, resulting in a sustained pullback from the early July peak.
Summary
With speculation rising that the BoJ could tweak its yield curve control policy in upcoming meetings, the Japanese Yen found some much-needed strength, triggering a significant selloff in the GBPJY currency pair. While the market found support at 177.315, the resistance at 178.185 remains a significant barrier to the upside in the closing week session.
Sources: Koyfin, Tradingview
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