GBP/JPY: Eying bullish break to multi-year highs ahead of key economic reports

GBP/JPY less than 40 pips away from hitting the highest level since late 2015
There’s little visible resistance located on the charts until 195, giving the pair plenty of room to run should it break higher
Japanese corporate goods inflation and UK employment, wages and inflation are the main risk events to watch over the next few days. US CPI will also hit the screens later Tuesday.

GBP/JPY is on the cusp of breaking to fresh multi-year highs ahead of key inflation and employment data from the United Kingdom and Japan, making this a pair to keep on the radar over the next 48 hours.

GBP/JPY testing resistance dating back to 2015

Having bounced off uptrend support on multiple occasions since the start of February, GBPJPY is now testing horizontal resistance located at 188.80, a level that dates all the way back to late 2015. While it has been repelled on three occasions dating back to January 19, the bullish hammer candle printed to start the week suggests another test could be on the cards today.

With plenty of room to run should it break higher

A break of this level may encourage fresh long positions to be initiated targeting a push towards the highs struck in 2015 before the UK voted to leave the European Union. Looking on the longer-dated charts, there’s not a lot of visible resistance located until around 195.00, providing plenty of room to run should we get a clean break.

Japan corporate goods inflation and UK inflation and wages data on tap

Looking at the data docket over the next few days, there’s plenty of potential catalysts lurking to get GBP/JPY moving.

In Japan, corporate goods price inflation – akin to producer price inflation in other western economies – will be released later Tuesday, providing the Bank of Japan and markets another read on upstream price pressures. Later in the week, preliminary Q4 GDP information will also hit, with all eyes on trends in private sector consumption and investment given the implications for sustained inflation and wage pressures.

In the UK, traders will digest the latest experimental employment survey from the ONS, although, given the flow influence on services inflation, there’ll likely be more interest on the trends in wages growth. Previously, average earnings excluding bonuses increased 6.6% from a year earlier in November.

Two days later, an even bigger event arrives with the release of UK consumer price inflation (CPI) data for January. After an upside surprise in services and core inflation in December, the key clue from this report is whether the result was driven by seasonal quirks or the start of a longer-lasting, sticky trend?

Sandwiched in between, the US core CPI report for January will be the main known risk for traders this week with a monthly increase of 0.3% expected.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.