The GBPJPY currency pair, also known as the Dragon, is enjoying a bullish trading session after the BoE rate hike helped the pair bounce off a significant level as investor sentiment turned bullish. The BoE delivered a 12th consecutive rate hike after hiking the cash rate by a widely expected 25 basis points on Thursday. The rate hike supported the British Pound but was not enough for the currency to recoup the losses suffered during the week, with the Dragon firmly on course to close the week in the red after declining over 0.9%.
Also, the UK GDP data showed that the economy shrank in March after achieving -0.3% growth against the flat 0% expectation, but still grew by 0.1% for the first quarter of the year. The growth data boosted the British Pound and supported the Dragon’s rally.
Technical
The 4H chart shows that the Dragon recently bounced off the dynamic support at the 61.80% Fibonacci retracement level. The bulls could be hoping that the retracement from the golden ratio could trigger a rally towards the 23.60% Fibonacci retracement level at 170.702. The 50-day moving average would act as a significant barrier to the bulls’ rally. Investors could pay close attention to the reaction of the Dragon around the 170.702 level, as a sustained break above the level could trigger a breakout towards the 172.321 resistance level. However, failure to sustain a break above the level would leave significant support levels in play.
Failure of the bulls to sustain the retracement could trigger a pullback and retest of the golden ratio. The fall of the golden ratio would bring the 167.010 and 165.461 support levels into play.
Summary
The Dragon bulls are currently firmly in control as the monetary policy divergence bets continue to favour the British Pound in the short term. However, the bulls would need to sustain a break above the 23.60% Fibonacci retracement level at 170.702 if they look to attack the 172.321 significant level. Failure to maintain a break above the level would leave the bulls vulnerable to the bears’ attack and the pullback towards the significant support levels.
Sources: TradingView, Reuters, The Guardian.
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