• The GBP/JPY cross has rebounded after two days of losses and is poised for a seventh straight weekly gain.
  • The Q1 UK GDP revision produced no surprises, coming in at 0.2% year-on-year.
  • Japan’s inflation numbers unexpectedly slowed in May.

GBP/JPY jumped to a high of 183.87 before settling at 183.25 after experiencing two consecutive days of losses – although still on course for a seventh straight weekly gain. Revised Q1 UK GDP data produced no surprises with a 0.2% year-on-year growth rate. On the other hand, Japan’s May inflation data unexpectedly showed a slowdown, further supporting the Bank of Japan’s (BoJ) dovish stance.

Monetary policy divergence was expected to further weaken the JPY

On Friday, the UK’s Office for National Statistics confirmed that UK GDP grew at an annual rate of 0.2% in the first quarter, in line with expectations. It is worth noting that Andrew Bailey of Bank of England (BoE) said on Wednesday that it expects economic activity to “flatten” but that the bank will do whatever is necessary to reduce inflation. As a result of his comments in the previous days Sterling faced some selling pressure as traders worried about the impact of the BoE’s aggressive stance on economic activity. However, Friday’s GDP data brought calm to the markets.

In contrast, the Tokyo Consumer Price Index (CPI) for June showed a lower-than-expected total of 3.1% year-on-year, compared with expectations of 3.8%. Core CPI reached 3.8% (4.1% previously expected). The results are in line with Bank of Japan (BoJ) Governor Kazuo Ueda’s comments during his statement on Wednesday, when he stressed that once inflation catches up with forecast, will consider a potential policy change. However, declining inflationary pressure in Japan is supporting a dovish stance and consequently a less attractive yen.

GBP/JPY Levels to Watch

On the daily chart, GBP/JPY’s positive trajectory is intact, but the cross remains overbought, indicating the need to consolidate gains. The Relative Strength Index (RSI) is holding a positive slope above 70. At the same time, the Moving Average of Convergence Divergence (MACD) is showing descending green bars, indicating that the bullish momentum is slowly weakening and possibly indicating that a correction may be on the horizon. .

On the downside, support levels lined up at 183.00, followed by the 182.30 zone and the psychological mark of 181.00. On the other hand, if a larger position is taken, the cross will face resistances at 183.70, 184.00 and 184.50.

GBP/JPY Daily chart

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