GBP/JPY jumped above the 20-day SMA amid a dovish BoJ stance

The GBP/JPY cross rose more than 1% on Friday to a high above the 20-day Simple Moving Average (SMA) and is poised to close a weekly gain. The JPY faced severe selling pressure amid dovish bets on the Bank of Japan (BoJ) before next week’s meeting, while the GBP strengthened on solid Retail Sales figures.

Retail Sales in the UK rose more than expected in June. BoJ to hold its YCC policy

Retail Sales from the UK in June rose more than the expectations. The headline figure came in at 0.7% MoM vs the 0.2% expected improvement from the previous 0.1% and provided some support to the GBP. 

Regarding the Bank of England’s (BoE)  next steps, markets are discounting low 45% odds of a 50 basis point (bps) hike following the soft inflation figures reported on Wednesday and foresee 25 basis point hikes in September, November and February 2024, which would see the terminal rate at 5.75%, lower than last week’s estimates of 6.5%.

On the Japanese side, June inflation data showed that the National Consumer Price Index (CPI) dropped to 3.3% YoY, below the 3.5% expected, while the Core measure remained steady at 4.2% YoY, just as expected.

Ahead of next week’s meeting, according to Reuters, the BoJ will maintain its Yield Control Curve (YCC) policy as the bank considers that inflation is rising but the key is whether the increase is sustainable. In that sense, policy divergences between the BoE and the BoJ is applying selling pressure on the JPY.

GBP/JPY Levels to watch

The daily chart indicates a neutral to bullish outlook for the short term. The indicators show resilience, with the Relative Strength Index (RSI) positioning jumping above the midline, pointing north. At the same time, the Moving Average Convergence Divergence (MACD) prints subtle red bars, indicating a fading selling momentum. Looking at the bigger picture, the cross remains well-positioned above the 100-day and 200-day Simple Moving Averages (SMA) and the pair holding above the longer-term averages indicates that the bulls have the upperhand.

Resistance levels: 182.60, 183.00, 184.00
Support levels: 180.00. 179.50, 179.00.

GBP/JPY Daily chart