GBP/JPY – A major test below

Can it turn things around?

It’s been a rough time for the pound, particularly against the yen and this week has seen it cross into bearish territory.

The pair had been on a strong uptrend but a weakening of the UK economy and pared-back interest rate expectations for the Bank of England started the decline from the highs which was finished off last Friday by the Omicron announcement.

Since then it’s been on a sharp trajectory lower and now, having fallen through major support levels, it’s a case of how far it can drop. Of course, this depends heavily on the scientific data on the new variant in the coming weeks but for now, it’s not looking good.

It is running into support at the end of the week though. Long-term support around 148.50 that’s held for most of this year stands in the way of the pair potentially plunging, given the psychological blow it would deliver. Not to mention the stops that may be triggered as a result of it being long-term support.

A rebound off this level would be interesting as, despite recent momentum slowing which is evident from the divergence on the 4-hour chart, there has been significant momentum on the longer time frames which suggests 148.50 is going to be seriously challenged. That could mean a shallow correction.

The first test will be 150, from a psychological perspective, followed by 150.75-151 where the pair recently saw support and resistance. This may also coincide with the bottom of the descending channel.

Above here, the 151.50-152.50 region is key. Not only does this fall around the 200/233-day SMA band, but it also falls around the 50/61.8 fib levels of the mid-November highs to the recent lows (which could become lower and alter these levels slightly).

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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