- JPY long-tern downtrend in danger
- A confirmed break of 156.00 is a sign that you are able to go higher.
GBP/ USD are up by around 30 big numbers from the spike low in mid-March 2020. The daily chart shows a series higher highs along with lower lows. This move is largely due to an improving British Pound and the Japanese Yen continuing to struggle because of a seemingly inexorable dovish monetary backdrop.
Recent commentary by the Bank of England (BoE), suggests that they are still concerned about tightening monetary policies too fast to allow inflation to become more established. However, the UK is experiencing increasing price pressures. Although the latest UK inflation reading was 2.1% in May, it is still above target. However, the central bank acknowledged that this rise in inflation could be temporary due to changes in energy prices and other commodity prices. While the BoE will not change its policy approach, Sterling may be affected if inflation pushes higher in the next three months.
The Bank of Japan, however, continues to promote a loose monetary policy. They keep interest rates in negative territory to continue to prime the economy. The Bank of Japan continues to see GDP growth of 4% in this fiscal year. This is compared with a 4.6% contraction in 2020.
The monthly GBP/JPY chart is a more comprehensive view of the market. It shows that the pair is at an interesting stage with the rally in the last 16 months trying to surpass the multi-year downtrend. Although the first attempt failed, it is likely that repeated attempts will be made as the slopes start to intersect.
GBP/JPY MONTHLY PRICE CHART
We can see that the multiyear downtrend is still holding, but has been under pressure for the past month if we reduce the timeframe. A break above the trend must be confirmed in order for the pair to move higher. This would allow it to return to 156.00 or above. If the long-term downtrend fails to be broken, there is a cluster around 163.90 that has produced high prints.
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