GBP/JPY forecast turns bearish ahead of BoJ

Along with other Japanese yen crosses, the GBP/JPY has been creating bearish price action this week amid rising expectations that the BoJ will tighten its policy next week. The GBP/JPY forecast is now looking bearish, with momentum gathering pace as more and more support levels give way.

Why has the yen rallied?

Well, it is all to do with the bond markets. The narrowing of yield differential between Japan and those of the rest of the world have helped to put some downward pressure on the al JPY pairs.

The GBP/JPY forecast has shifted bearish as the Japanese yen strengthens amid declining global bond yields, driven by softer-than-expected inflation data from the US and UK this week. Today’s softer US retail sales also helped to put downward pressure on US yields.

With markets now pricing in earlier-than-anticipated Fed rate cuts, bonds have rallied, causing yields in major economies to fall. This has increased the attractiveness of the low-yielding Japanese yen, further supported by indications that the Bank of Japan will tighten its belt next week…

Technical GBP/JPY forecast: Key levels to watch

Source: TradingView.com

The GBP/JPY created a bearish engulfing candle on its daily chart on Wednesday and today we have seen some nice downside follow-through. This pattern has been mirrored across other major yen pairs.

At the time of writing, the GBP/JPY was testing – and trying to break – key support around the 190.00 area. A decisive break below this level could trigger additional technical selling in the days ahead, initially targeting the liquidity resting below the December low of 188.08.

Key resistance is now located in the 192.85 to 193.50 range, while yesterday’s low at 191.10, now breached, has become the critical near-term resistance level to monitor.

Video: EUR/JPY key levels to watch

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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