GBP/JPY Price Forecast: Looking for direction above 198.25 support
The Pound treads water as the Yen loses momentum, with market sentiment improving.
The bearish correction from last week's highs near 200.00, remains contained above 198.25 for now.
On the upside, the Pound would need to clear Monday's top, at 198.80, to ease bearish pressure.
The Pound is picking up on Tuesday, but so far remains trapped within Monday’s narrow trading range, at a short distance above the 198.25 support level. The pair is on a bearish correction from last week's highs, right below 200.00 within a broader bullish trend.
A brighter market mood is providing some support to the British Pound on Tuesday, to the detriment of the safe-haven Yen. Gross Domestic Product and Industrial Production data from China revealed that the world’s second-largest economy remains growing at a solid pace despite US tariffs, easing concerns about the uncertain outlook of international trade.
Technical Analysis: Correcting lower from the 200.00 resistance area
The GBP/JPY’s immediate trend remains negative, although the brighter market sentiment has eased bearish momentum. Price action remains contained below Monday’s high, at 198.80, although the 4-hour RSI has crossed above the 50 level that divides the bullish from the bearish territory.
The pair needs to break the mentioned 198.80 resistance area to ease bearish pressure and shift the focus towards the July 11 high, at 199.45, and the July 10 high, at 199.85.
On the flip side, a bearish reaction below the June 14 low at 198.25 would find support at the July 7 low, which crosses the bottom of the ascending channel, near 196.80.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
