History May Repeat Itself

Summary:

The market shows little downside space with the upward curve steepening. Bulls may be forced to push higher again, potentially followed by a sharp correction similar to the late August to early September surge.

BUY GBPJPY

Close Time

CLOSED

194.806

Entry Price

198.560

192.500

213.129 -0.732 -0.34%

14.6

Pips

Profit

192.500

194.952

Exit Price

194.806

Entry Price

198.560

Fundamentals

GBPJPY continued its recovery on Friday and is trading in positive territory. The Japanese yen remains weak amid the Bank of Japan's unclear stance on policy.

Japan's Ministry of Economy, Trade and Industry reported that cash earnings in August rose 3.0% year-on-year, falling short of economists' forecast of 3.1% and lower than the revised figure of 3.6% in July.

The slower-than-expected wage growth may dampen inflation, reducing the likelihood of further rate hikes by the Bank of Japan. Prolonged low-interest rates may reduce foreign capital inflows into Japan, diminishing demand for the yen and contributing to its depreciation. This, in turn, has bolstered GBPJPY.

Meanwhile, Bank of England (BoE) Chief Economist Huw Pill noted that any future rate cuts by the central bank should be cautious as the pound is regaining some stability. This sentiment has helped GBPJPY maintain its upward momentum. Previously, the pair experienced a significant decline due to comments from BoE Governor Andrew Bailey, who indicated that the central bank might need to cut rates "more aggressively."

GBPJPY appears to be on a short-term upward trend. Japan's new Prime Minister Shigeru Ishiba indicated that rates might stay low given the economic conditions, creating more headwinds for the yen.

Currently, both central banks are expected to maintain their current policy rates. Still, with bond yields favoring GBP, the pound may push GBP/JPY back to 15-year highs.

In the broader context, the recent correction in GBPJPY after its drop from 15-year highs is a healthy retracement. The correction is not over yet, as the fundamental drivers behind the nearly 50% rise in the past four years are arguably stronger than ever.

Technical Analysis

GBPJPY has strongly rebounded from the 183.72 support level in the past two weeks, reaching a two-month high of 196.01. Bulls successfully breaking above the 50-day and 200-day SMAs has provided a solid foundation for further upward correction.

Momentum indicators show that the stochastic oscillator is still rising in overbought territory, while the RSI is attempting to break through the 70 level.

If bullish momentum accelerates, it could break through the recent high consolidation to challenge the next resistance at 197.00. Further gains would test 199.40 and the psychological 200.00 level.

On the downside, a drop below the immediate support at 192.91 could drive GBPJPY towards the 200-day SMA at 192.70. A break below 189.54 would shift the trend back down and target the support at 183.70.

Overall, GBPJPY shows optimism for an upward retracement, with little downside space as the curve rises. Bulls may be forced to push higher, leading to a sharp correction similar to the strong rally seen from late August to early September.

Trading recommendations

Trading Direction: Buy

Entry Price: 194.31

Target Price: 198.56

Stop Loss: 192.50

Valid Until: Oct 27, 2024 23:55:00

Support: 193.54, 192.51, 191.70

Resistance: 195.47, 196.01, 197.57

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