The British pound is set for a busy week against the Japanese yen currency as the United Kingdom economy releases more top-tier economic data and the Bank of Japan meet to decide on interest rates and monetary policy.
Weakness in the British pound currency has been weighing on the GBPJPY pair lately, however, the strength in the Japanese currency had been due to risk-off trading sentiment.
This could be about to change as this week’s Bank of Japan policy meeting is likely to show a clear divergence between the Bank of Japan and the Bank of England, as the BOJ remain strictly dovish towards the Japanese economy.
With the United Kingdom economy showing signs of rising inflationary pressures, as highlighted by the recent June CPI report, and tentative growth signals. The fundamentals differences between the weakening Japanese and stabilizing UK economy are now emerging.
Currency trading is often defined by market timing. Currency traders need to reprice fundamental and technical disparities. I believe with the fundamentals of these economies starting to differ an opportunity to buy the GBPJPY at bargain levels is starting to emerge.
The ActivTrader Market Sentiment tool shows that some 74 percent of traders are bearish towards the GBPJPY pair right now. This bodes well for more gains in the GBPJPY pair as historical data has shown that fading one-sentiment skews amongst the retail crowd has proved to be lucrative.
GBPJPY Short-Term Technical Analysis
The four-hour time frame shows that the GBPJPY pair has formed bullish MACD price divergence during recent week, meaning that the GBPJPY pair could be ready to bounce back sharply. The bullish divergence extends towards the 154.50 area.
It is also noteworthy that a large, inverted head and shoulders pattern will form if the potential recovery can reach the 156.00 resistance level. The size if the pattern would indicate an eventual rally above the 160.00 level.
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GBPJPY Medium-Term Technical Analysis
Looking at the daily time chart shows that the GBPJPY pair a bullish descending expanding wedge pattern has formed and is present between the 153.00 and 155.00 level. These wedge patterns are typically considered to be amongst the most bullish reversal patterns.
Buyers have repeatedly struggled to move the price above the top of the mentioned wedge pattern. Interestingly, if bulls can move the price above the 155.00 level then a powerful rally towards the 157.00 level should be expected.
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