GBP/JPY Price Analysis: Trims Thursday’s losses near the 181.60 area

• GBP/JPY recovers some of its previous day's losses and holds above 181.60, up 0.24% for the day.
• The immediate resistance emerges at 181.70; the critical support level to watch is at 181.00
• The Relative Strength Index (RSI) and MACD are still located in bearish territory.

The GBP/JPY cross recovers its recent losses during the early Asian session on Friday. The cross currently trades around 181.62, gaining 0.24% for the day. A divergence in the monetary policy stance between the Bank of England (BoE) and the Bank of Japan (BoJ) acts as a tailwind for the GBP/JPY cross.

In its August policy meeting, the Bank of England (BoE) raised interest rates by 25 basis points (bps) to a 15-year high of 5.25% from 5%. As inflation remains elevated, the markets anticipated that the BoE would likely increase interest rates twice more by the end of the year. On the other hand, BoJ Governor Kazuo Ueda reiterated last week that the central bank will not hesitate to ease policy further and that more time is required to achieve the 2% inflation target sustainably.

According to the four-hour chart, GBP/JPY’s immediate resistance emerges at 181.70 (the 50-hour EMA). Any meaningful follow-through buying could pave the way to the next hurdle at 182.50 (High of July 21) en route to 182.75 (High of August 3). Following that, GBP/JPY has room to test the additional upside filter at 183.20 (High of August 1).

On the downside, the critical support level to watch is at 181.00, the confluence of the psychological round mark and the low of August 3. A breach of the latter, further downside is expected. The next contention is seen at 180.45 (Low of August 3), followed by 179.75 (Low July 20). Further south, the cross will see a drop to 179.50 (Low of July 13).

However, the Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD) are still located in bearish territory, highlighting that further downside cannot be ruled out. 

GBP/JPY four-hour chart