GBPJPY has been trending lower on its 1-hour time frame, with the 100 SMA treading below the longer-term 200 SMA and indicating that the selloff could continue. Price bounced off the support at the 180.50 minor psychological mark and may be due for a pullback to the Fibonacci retracement levels.
In particular, the 61.8% Fibonacci retracement level lines up with a broken short-term support zone at the 183.00 major psychological mark. This is also near the 100 SMA, which has held as a dynamic resistance level in the past. A smaller correction could last until the 38.2% Fib near the 182.00 level or the 50% Fib at the 182.50 minor psychological level.
Stochastic is still on the move up, indicating that buyers are in control of price action and that a retracement is still taking place. However, an upside break past the Fib levels might be an early signal that a reversal from the downtrend is in order.
The main event risk for this setup this week is the BOE rate statement, which will be followed by the release of the MPC meeting minutes. Only one member is expected to have voted to hike interest rates this time, although the global equity slump might’ve convinced him to hold off any tightening decisions. If so, the pound could be in for more declines against the Japanese yen.
Data from the Japanese economy hasn’t been so impressive, but the safe-haven currency has drawn support from the surge in risk aversion last week. Apart from that, the pound lost some of its appeal when PMI readings from the manufacturing, construction, and services sectors came in below expectations.
Other event risks include the release of Japan’s current account balance, final GDP reading for Q2, and the preliminary industrial production report for August. Stronger than expected data could continue to support the lower-yielding yen, especially if risk appetite remains weak in the financial markets.