GBP/JPY has been weakening since 14th Jan, with a recovery from 16th Jan – 18th Jan briefly lifted bearish pressure. However the recovery didn’t last long, with price forming a downward Channel since last Friday, heading below 140. Price found some respite in the form of previous swing low on 9th Jan, which also acted as a resistance level back in 28 and 29th Dec. A small part of this week’s decline can be attributed to the strengthening of Yen post BoJ’s announcement. But a large portion of the decline is due to the inherent weakness of Sterling Pound. Despite this weakness, there are some positives for GBP/JPY.
1) PM Cameron has just made a press conference in which he mentioned that UK will seek referendum for EU membership. Verdict is still out on whether such a move will benefit UK’s economy, but initial signs from prices suggest that market welcomes this move.
2) BOE’s minutes showed 8-1 vote to maintain asset purchase target and unanimous against rates cuts. This will encourage GBP to strengthen as expectations were on MPC members to slowly sway towards more easing measures.
From a technical point of view, rally from here could face resistance around 140.0 near Channel Top. Confirmation of bullish intent will need to see price overcoming the Channel first, and subsequently break 141 support turn resistance.
Price still look extended via the weekly chart, with the same 139.4 support keeping price against larger drops towards 136 and subsequently 126. Stochastic looks heavy with readings appearing to peaked. Significance of 141 can also be seen back in April 2010 where price was acting as a support.
The 2015 election remains his biggest obstacle. Opinion polls show the Tories losing support to the anti-EU U.K. Independence Party and trailing the Labour Party by around 10 percentage points in opinion polls.