The GBPJPY currency pair threatened a technical breakdown in the Friday session as a major resistance level stunted the bullish rally. With the new Bank of Japan governor sticking to the ultra-loose monetary policy in Japan, the currency pair was expected to gain some strength. However, flatlined US GDP data and recession worries supported the safe-haven Yen, as the currency pair underwent a downturn in the latest price action for the volatile currency pair.
On Friday, the UK economy unexpectedly flatlined, with 0% month-on-month growth. The markets expected a 0.1% increase on the prior month’s 0.4% rise. The service sector contributed to the stall as strike actions by teachers and civil servants weighed on the sector’s growth. The slowdown in growth could add fuel to the fire, with markets now pricing in the potential for a global recession in the latter parts of the year.
With major resistance established at 166.01, the bears reacted on a bearish engulfing candlestick pattern to enforce a leg down toward the rising wedge support at 165.54. The rising wedge is now at risk of a bearish breakdown toward 165.27 (S1), which is also the 38.2% Fibonacci retracement level from the Thursday peak. From there, bearish momentum could see a test of the Fibonacci midpoint at 164.77 on its way towards lower support at 163.79.
However, if the wedge support holds, the currency pair could look to bounce back to the daily pivot resistance at 166.06. To continue trading within the wedge, the bulls could aim for resistance at 166.71 (R1). However, bearish momentum currently has the stronghold, with the daily pivot point breached from above in the Friday session.
With the bears taking control, the currency pair could break down the rising wedge formation toward support at 165.27 and 164.77. However, the GBPJPY remains exceptionally volatile, with the bulls not out of the equation just yet, as they could continue to provide support to trade within the wedge.
Sources: Koyfin, Tradingview
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