Last week, the Bank of England (BoE) surprised the markets by implementing a 50 basis points (bps) hike in interest rates. This decision came shortly after the release of another high Consumer Price Index (CPI) report, particularly in relation to core inflation, which reached a new record high. The BoE took into consideration previous data, such as a robust employment report that revealed wages increasing beyond expectations. Based on these factors, the BoE concluded that a larger interest rate hike was necessary. As a result, the British pound received an additional boost, although the upward momentum is beginning to diminish.
On the other hand, Japan also experienced a recent surge in core inflation, as indicated by a hot inflation report. The Bank of Japan (BoJ) published its Summary of Opinions, which revealed a decline in the board's confidence regarding inflation returning to 2% by the middle of the fiscal year. This particular target had been frequently referenced by the BoJ in the past. Additionally, one member of the board called for a reassessment of the BoJ's Yield Curve Control (YCC) policy. These developments in Japan's inflation and the BoJ's deliberations have influenced the market sentiment in the country.
The GBPJPY pair has exhibited a parabolic rise on the daily chart following the release of the strong employment report two weeks ago. The current trend remains bullish, characterized by consecutive higher highs and higher lows. Furthermore, the moving averages have shown a clear upward crossover, supporting the positive sentiment.
In the event of a significant pullback in price, it is anticipated that buyers will be eager to enter the market as the price approaches the trendline and the red 21 moving average. This assumes that other relevant factors remain unchanged.
Please note that financial market analysis is subjective and speculative in nature, and it is always important to conduct thorough research and analysis before making any trading decisions.
Analyzing the 4-hour chart, we observe a divergence between the recent upward movement of the GBPJPY pair and the MACD indicator. Divergence of this nature typically suggests a loss of momentum, often indicating an upcoming pullback or even a potential reversal. Presently, the price is finding support from a minor upward trendline and the red 21 moving average.
If the price breaks below the trendline, it is likely that the downward momentum will continue, potentially leading to a decline towards the 179.92 swing low level. This level serves as a natural target for the divergent setup, considering the current market dynamics.
It is important to note that market conditions can change rapidly, and technical analysis indicators are not foolproof. Therefore, conducting comprehensive analysis and incorporating other relevant factors is essential when making trading decisions.
Head Trader & Coach at www.thetradingmentors.com