We’ve seen a bit of a recovery in GBP/JPY over the last couple of weeks as risk appetite has rebounded in the markets. But how much further can it run?
What’s helped the move more recently is improving odds on a Bank of England rate hike on Thursday. It’s still widely expected that the MPC will vote against hiking this time and then do so in February when it has a much clearer view on Omicron COVID variant and the economy, but it’s now expected to be much closer.
A hike could propel the pound higher in the near term and put key resistance under significant pressure. The big test above is 152.50, where the 61.8 fib coincides with recent support, the upper end of the 200/233-day SMA, and the lower end of the 55/89-day SMA.
A rotation here could be a significantly bearish signal, as it would confirm the initial break into bearish territory and suggest the recent correction is just that rather than something more significant.
I don’t think that would be the case this time, though. It wouldn’t be the first time the BoE has put off raising rates, despite leading us to believe otherwise. Instead, they could hike in order to follow through on those warnings and once again catch the market a little off guard.
Either way, with the BoE and Bank of Japan rate decisions to come, among many others, the next couple of days will be action-packed, which could bring plenty of volatility.