Forex technicals: GBP/JPY nears 15-month peak in rally ; Intervention from the Bank of Japan?

GBP/JPY is a very popular pair in Forex trading as it captures both risk-on/risk-off dynamics, geographic trends, and rate differential trends.

The Yen and Sterling have been subject to some strong dynamics over the past month.

In Japan, markets are still concerned with the reckless government spending which the Japanese Prime Minister tried to defend against.

The latest development sees PM Sanae Takaichi and her cabinet approving a ¥21 trillion stimulus package—the largest since the COVID era.

This fiscal dovishness from the new Prime Minister, historically a negative for currency strength, has been heavily priced in since her appointment. Paradoxically, this may force the Bank of Japan to turn more hawkish, potentially hiking rates sooner to protect against a run on the JPY – The next decision is expected on December 18th.

There could still be an intervention from the BoJ which aims at buying back some Yen against other currency reserves.

For the Pound, the initial volatility relative to the recent Budget is turning into a positive trend. Despite not pivoting to full austerity (aiming to cut expenses for a better fiscal balance), the budget is perceived as far from reckless.

While higher income taxes might dampen consumption slightly, the overall fiscal stance has put the GBP in a decent position, making it the 3rd best performer of today's session.

Technically, the pair is at key point. If the current rally extends beyond the 207.00 level, the price action will point directly to a retest of the July 2024 peak.

Let's dive into a multi-timeframe analysis and technical levels for GBP/JPY, a pair that should stay active during the Thanksgiving break.

Read More:

• US stocks turn green for the pre-Thanksgiving trading session
• Markets Today: RBNZ Cut Rates, Gold Hits Two-Week Highs, FTSE 100 Trades Above 200-day MA Ahead of UK Budget
• US Dollar takes a hit as Dovish Fed U-turn boosts AUD, EUR, and JPY outlook

The pair has evolved in a one-way tight bull channel since November 5, taking prices to overbought RSI levels.

Nevertheless, overbought doesn't mean top, particularly as the RSI is still tilting upwards, hence momentum backs the ongoing rebound.

One thing to look for on the bigger timeframe is how the market reacts to its entry (or lack thereof) in the 207.00 Resistance:

• Last week, the action stopped at 206.86 which is the level to keep in mind: Closing above would confirm an entry in the Resistance and targets the 208.120 highs.
• Below, it could point more to a double-top action and a reversal
• Keep in mind that the Bank of Japan may intervene during the Thanksgiving break which may also provide a huge move lower. The issue is that the timing for such is unknown.

Let's dive into the intraday charts.

The current 4H Candle forms a doji – pointing to a more hesitant price action.

A potential trading gameplan could be to look at breakout scenarios:

• A 4H close above 207.074 should push further into the resistance zone.
• A push below the 205.526 candle lows hints at further retracement.

Levels to watch for GBPJPY trading:

Support Levels:

• 4H Candle lows 206.50
• Post-Election highs 205.33 – Current pivot
• Higher timeframe Pivot – Current Support 203.00
• Main key Support 199.00 to 200.00
• Mid 2025 Support 195.00 to 196.85

Resistance Levels:

• 207.00 to 208.00 2024 July highs – Current test
• Session highs 207.074
• 208.120 July 2024 highs
• 209.50 to 210.50 May 2008 Extremes

The shorter timeframe points at further balance as the buying stalls on overbought 1H RSI.

As mentioned, right before, look at whether markets make a push either for the highs or the lows in a breakout scenario.

To avoid fakeouts, a trader can also wait for a 1H or 4H Candle close as confirmation.

In case of a bigger retracement, keep an eye on the Hourly uptrend to see if it holds, implying a buy signal or breaks, implying a sell signal.

Safe Trades!

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