19 Dec 2024

GBP/JPY declines for the second consecutive day, although there is a lack of significant selling pressure. Diminished expectations for substantial Bank of England rate reductions in 2025 provide support for the GBP. Meanwhile, the anticipation that the Bank of Japan will maintain its current interest rates keeps JPY buyers cautious. The technical indicators suggest the potential for dip-buying opportunities at lower price levels.

The GBP/JPY currency pair has drawn the attention of intraday sellers after experiencing an uptick during the Asian session, reaching the 195.50 level, and subsequently declining for the second consecutive day on Wednesday. Nevertheless, the spot prices remain near a nearly four-week peak achieved on Tuesday, currently trading just below the significant psychological threshold of 195.00, as traders await the UK Consumer Price Index (CPI) report for new direction.

The release of robust UK wage growth data on Tuesday underscored the necessity for the Bank of England (BoE) to maintain its current interest rates at the upcoming meeting on Thursday, leading investors to reduce their expectations for three rate cuts of 25 basis points each in the following year. This development may continue to support the British Pound (GBP). Additionally, the anticipation that the Bank of Japan (BoJ) will refrain from raising interest rates at the December policy meeting keeps the Japanese Yen (JPY) bulls cautious, which should further benefit the GBP/JPY cross.

This week's breach of the significant 20-day Simple Moving Average (SMA) has been interpreted as a new impetus for bullish traders from a technical standpoint. Additionally, the oscillators on the daily chart have recently begun to show positive momentum and remain distant from the overbought zone. This development reinforces a favorable short-term outlook for the GBP/JPY pair and encourages the potential for dip-buyers to enter at lower price points. However, it is important to exercise caution in the event of a setback near the 61.8% Fibonacci retracement level associated with the decline from October to December.

Any additional decline is likely to encounter support near the 194.45 horizontal zone, just before reaching the 194.00 level or the 50% Fibonacci retracement. If there is continued selling pressure, the GBP/JPY pair may become susceptible to a deeper decline towards the intermediate support at 193.40, progressing towards the 193.192.95 area and the 38.2% Fibonacci level, which is situated around the 192.60-192.55 range.

Conversely, if the pair maintains strength and establishes a foothold above the 195.50 level, or the 61.8% Fibonacci retracement, this will reinforce a positive outlook and propel the GBP/JPY pair towards the 196.00 round number. The upward momentum could potentially extend further to the 196.65 resistance, leading towards the 197.00 level and the 78.6% Fibonacci retracement, located in the vicinity of 197.30-197.35.