British Pound (GBP) Price Outlook: GBP/JPY Closes in on Major Resistance Levels
GBP PRICE, NEWS AND ANALYSIS:
- The strong move higher in GBP/JPY, that has taken it from a recent low at 148.96 on September 21 to above 1.55 currently, is now facing stiff resistance that will have to be overcome if the trend is to continue.
- Even if it can break through the 1.5611 high recorded on May 27, there is further resistance at the 156.62 high recorded on February 2, 2018.
GBP/JPY FACING KEY TEST
The strength of the recent advance in GBP/JPY is facing a key test at the 1.5611 high recorded on May 27 and it will likely pause at that level as traders decide whether to keep buying the pair. If it does break through, GBP will be at its highest level since early 2018.
Moreover, a further advance above the 156.62 high recorded in February that year would take GBP to its highest against JPY for more than five years, as shown on the weekly chart below.
GBP/JPY PRICE CHART, WEEKLY TIMEFRAME (JANUARY 18, 2016 - OCTOBER 14, 2021)
Source: IG (You can click on it for a larger image)
On the GBP side of the equation, the Pound is benefiting from suggestions that the Bank of England could be the second major central bank, after only New Zealand, to tighten monetary policy in the current cycle. On the JPY side, Bank of Japan Policy Board member Noguchi Asahi said Thursday that he ruled out withdrawing stimulus even after the Japanese economy recovers from the hit caused by the Covid-19 pandemic.
That should keep the upward trend in GBP/JPY going longer-term, but the resistance levels mentioned earlier will likely cause at least a temporary barrier first.
BULLISH SIGNAL FROM POSITIONING DATA
As for sentiment, IG client figures show that 27.15% of traders using the company’s platforms are net-long, with the ratio of traders short to long at 2.68 to 1. The number of traders net-long is 0.49% higher than yesterday but 13.50% lower than last week, while the number of traders net-short is 2.42% higher than yesterday and 33.50% higher than last week.
Here at DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise. Moreover, traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger GBP/JPY-bullish contrarian trading bias.
Written by Martin Essex, Analyst, 14th October 2021. DailyFX
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