- GBP/JPY regains positive traction on Wednesday and reverses a part of the overnight losses.
- The intraday uptick lost momentum after the disappointing release of the UK macro data.
- Reduced bets for a BoJ pivot continue to undermine the JPY and lend support to the cross.
The GBP/JPY cross attracts some dip-buying near the mid-182.00s on Wednesday and sticks to its intraday gains through the early part of the European session. Spot prices, however, retreat a few pips from the daily high in reaction to the disappointing UK macro data and currently trade below the 183.00 round figure.
The UK Office for National Statistics (ONS) reported that the economy contracted by 0.3% in October, missing consensus estimates for a 0.1% decline and the 0.2% growth registered in the previous month. A separate report showed that the downturn in the UK industrial sector deepened in October. This comes on top of Tuesday's mixed UK jobs report, indicating that Average Earning decelerated more than expected during the three months to October, and reaffirms expectations that the Bank of England's (BoE) rate-hiking cycle could be reversed in 2024.
The aforementioned fundamental backdrop weighs on the British Pound (GBP), though a mildly softer tone surrounding the Japanese Yen (JPY) acts as a tailwind for the GBP/JPY cross. Reports that the Bank of Japan (BoJ) policymakers see little need to end negative rates in December. Furthermore, hopes for more stimulus from China remain supportive of the underlying bullish market sentiment, which, in turn, is seen undermining the safe-haven JPY and lending support to the cross. That said, the lack of any follow-through buying warrants caution for bulls.
Even from a technical perspective, the recent breakdown and a subsequent failure near the 100-day Simple Moving Average (SMA) suggest that the path of least resistance for the GBP/JPY cross is to the downside. Hence, any further move up towards the said support-turned-resistance, currently pegged near the 183.75 region, might still be seen as a selling opportunity. That said, some follow-through buying beyond the weekly swing high, around the 184.30-184.35 region touched on Monday, will negate the near-term negative outlook for the cross.
Technical levels to watch
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