The GBP/JPY currency pair faced pressure on Wednesday, retreating for the second consecutive day after a brief uptick in the Asian session, which saw the cross test the 195.50 level. Although the pair has turned lower, it remains near a nearly four-week high reached on Tuesday, trading just below the key 195.00 psychological threshold. Market participants are now eyeing the UK Consumer Price Index (CPI) report for new trading cues.
A stronger-than-expected UK wage growth report on Tuesday reinforced the view that the Bank of England (BoE) is likely to keep interest rates steady at its meeting this Thursday. This development has led investors to scale back expectations for multiple rate cuts in 2024, which could provide ongoing support for the British Pound (GBP). Meanwhile, speculation that the Bank of Japan (BoJ) will hold off on rate hikes at its December policy meeting continues to weigh on the Japanese Yen (JPY), offering further support for GBP/JPY.
Technically, the pair’s recent breakout above the 20-day Simple Moving Average (SMA) has provided fresh momentum for bulls. Daily oscillators are gaining positive traction, although they remain far from overbought territory, suggesting that the near-term outlook for GBP/JPY remains bullish. Dip-buyers may emerge at lower levels, particularly if the pair fails to hold above the 61.8% Fibonacci retracement level from its October to December decline.
However, a decline from current levels could find support near the 194.45 zone, ahead of the 194.00 level and the 50% Fibonacci retracement. A further drop could see GBP/JPY test the 193.40 intermediate support, with potential downside to the 192.60-192.55 range, corresponding to the 38.2% Fibonacci level.
On the upside, sustained trading above the 195.50 area or the 61.8% Fibonacci level would reinforce the bullish sentiment and open the door for a move towards the 196.00 handle. The rally could extend further to test resistance near the 196.65 level, with a possible target at the 197.00 mark and the 78.6% Fibonacci retracement zone around 197.30-197.35.
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