GBP/JPY braces for volatility

GBPJPY pulls back from highs as BoJ hike scenario gains support.
Short-term bias stays bullish, a new volatile episode might be underway.

Christina Parthenidou XM

GBPJPY slipped about 0.5% to 199.34 after the Bank of Japan held rates steady as expected but two policymakers surprisingly called for a hike to 0.75%. The central bank also announced plans to sell $250bn of traded funds.

The retreat immediately followed the peak at a 14-month high at 201.25, where the pair stalled below the 23.6% Fibonacci retracement of the 2024 uptrend. The focus is now on the 198.75-199.75 area, where the 20- and 50-day SMAs and the ascending trendline from April are positioned. A break lower could expose 197.90 or even 197.00, where the 38.2% retracement level is located.

Momentum signals are softening, with the RSI and stochastics pointing lower. Still, as long as the RSI holds above 50, the bulls have room to regroup. In any case, the Bollinger Band squeeze suggests a new episode of volatility is imminent.

In the event buying interest resurfaces above 199.75, the pair may again battle the 201.00 bar with scope to meet the 203.00 mark and possibly stretch up to the key resistance line at 204.30.

Overall, despite selling pressure, the short-term outlook remains constructive. Holding 198.90–199.35 would preserve the bullish path.

Author

Christina Parthenidou

Christina joined the XM investment research department in May 2017. She holds a master degree in Economics and Business from the Erasmus University Rotterdam with a specialization in International economics.

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