The GBPJPY currency pair is enjoying a bullish trading session and is on course to close a third trading session in the green as the monetary policy divergence bets continue to help the Japanese Yen’s struggles against the British Pound.

The Jibun Bank manufacturing PMI data, which showed that Japan’s manufacturing activity for May increased from 49.5 to 50.6, against an expected increase to 50.8, failed to provide support to the Yen against the Yen, which is underpinned by the recent hot inflation data, which boosted bets of continued tightening by the BoE.

Technical

The 4H chart shows that the market is currently bullish towards the cross, with the formation of the ascending wedge and the price action firmly trading above both the 20-day moving average (20-EMA) and 50-day moving average (50-EMA). Therefore, should the bullish momentum continue, the bulls would likely look for a breakout above the channel’s resistance. A sustained break above the channel would bring the 175.388 resistance level into play. The fall of the 175.388 resistance level would likely trigger a run towards the 176.705 resistance level.

For a bear case, the price action would need to sustainably break below the 20-EMA (orange line) if the bears look to challenge the channel’s support and the 50-EMA (blue line). The break below the 50-EMA would suggest the presence of sellers and could trigger a sell-off towards the 172.494 support level, with the 170.931 support level firmly in the bears’ sight.

Summary

The ultra-loose monetary policy continues to weaken the Yen against the Pound, and the monetary policy divergence bets could continue to push the cross higher, with the BoE firm in its battle against sticky inflation. Therefore, there is potential for the cross to continue higher, with occasional pullbacks.

Sources: TradingView, Reuters.

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