The GBPJPY currency pair, also known as the Dragon, found a ceiling after recording a new seven-year high of 172.791 during the session, boosted by the hotter-than-expected inflation report from the UK released earlier today. The report showed that core inflation for April unexpectedly rose to 6.8% year-on-year against the expectation of a flat 6.2%. 

The inflation rate for April came in at 8.7% against expectations of 8.2% and down from 10.1% in March. The sticky inflation data for April boosted bets on a need for further monetary tightening by the Bank of England (BoE). However, the Dragon rise was short-lived, with the markets still tentative and worried about the debt ceiling development in the US. The worries have induced safe-haven demand for the Japanese Yen, helping support the currency against the Pound’s onslaught.    

Technical 

The 4H chart shows that the Dragon has formed a rising triangle trading pattern as the British Pound continued to claim ground from the Yen, which has seen the cross create new seven-year highs more than once this month.  

Zooming into the picture shows that the Dragon has been trading within a range as the US debt ceiling has given support to the safe-haven Japanese Yen since last week. The trading range is bounded by the psychological level at 171.221, and the resistance level at 172.525, and traders should keep a keen eye on the reaction of the Dragon to these bounds. 

A sustained breakout above the trading range could confirm the long-term bullish trend and would push the price action towards the 172.797 resistance level, a level of significance for the bulls. A break above the level of significance, supported by significant volume, could trigger a run towards the 173.625 resistance. However, should the price action sustain a break below the trading range, the dynamic support and the golden ratio would act as immediate support. The fall of the golden ratio could trigger a selloff towards lower significant levels.  

Summary 

After the release of recent UK inflation data earlier today, the market will now shift its focus to the US, with the US debt ceiling talks likely to dictate the direction of the Dragon. 

Sources: TradingView, Reuters. 

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