GBP/JPY rally falters at 188.00, the broader trend remains positive

GBP/JPY rally falters at 188.00, the broader trend remains positive
 

• Sterling’s rally stalls below 188.00, with the bullish trend intact
• Hopes of a dovish BoJ are weighing on a deeper Yen recovery.
• The strong UK CPI dampened hopes of BoE cuts and boosted the Pound across the board.

The Sterling is going through marginal losses on Thursday, with the pair reaching heavily overbought levels following a strong appreciation on Wednesday. This has allowed the battered Japanese Yen to trim some losses, although the broader trend remains bullish.

The pair is consolidating gains, with downside attempts limited above 187.30 so far. The stronger-than-expected UK Consumer Prices Index (CPI) released on Thursday poured cold water on BoE easing expectations and boosting the GBP across the board.

On the contrary, the Bank of Japan is widely expected to maintain its ultra-loose policy at next week’s meeting. The soft Tokyo CPI levels and the low wage growth seen earlier in January are anticipating a weaker inflation report later today, that will ease pressure on the Japanese central bank to normalize its monetary policy.

Data released today showed that Japanese Machinery orders declined well beyond expectations in November, increasing negative pressure on the Yen.

GBP/JPY remains bullish aiming to levels above 188.00

Technical indicators remain pointing higher, with the current pullback seen as a correction from overbought levels. The pair remains steady above previous highs, with support levels at 186.90 and 186.10 likely to hold bears.

On the upside, the 188.00 area is the 161,8% Fibonacci extension of the early January rally, often a significant resistance level. Above here, December’s high, at 189.65, and the 190.00 area will come into play.
 

Technical Levels to Watch