GBP/JPY. Analysis and Forecast

[Ben Graham]

The GBP/JPY pair opened the new trading week with a bullish gap, reaching the July 2024 high near 200.35 during the Asian session. However, after hitting the daily high, the pair pulled back and is now trading below the psychological level of 200.00.

The broad weakening of the Japanese yen is linked to news of the unexpected resignation of Japan's Prime Minister Shigeru Ishiba, which acted as a catalyst for GBP/JPY's rise. At the same time, domestic political turmoil outweighs the impact of the U.S.–Japan trade agreement, which provides for tariff reductions and higher GDP growth forecasts for Japan in Q2.

On Monday, the Japanese government reported that the economy grew 2.2% year-on-year from April to June, significantly above the initial 1.0% forecast. On a quarterly basis, GDP rose 0.5%, beating the 0.3% consensus. These figures strengthen expectations of a possible Bank of Japan rate hike by year-end and help to limit further yen depreciation.

On the other hand, the British pound is under pressure from the moderate strengthening of the U.S. dollar and persistent budget uncertainty. This largely offsets the Bank of England's cautious stance on potential rate cuts amid ongoing inflation risks, limiting the GBP/JPY pair's intraday upward potential and requiring traders to exercise caution when opening long positions.

From a technical perspective, although prices have slipped below the 200.00 level, the pair found strong support at 199.400. Oscillators on the daily chart remain positive, so traders leaning toward selling should refrain from opening positions. Those aiming for growth should also be cautious and wait for a move back above the 200.00 level.

The table below shows the percentage changes in the Japanese yen against major currencies for the current day.

The yen showed the greatest weakness against the British pound.

The material has been provided by InstaForex Company - www.instaforex.com