- GBP/JPY corrects from a multi-year peak in reaction to slightly hotter CPI from Japan.
- The slide might still be categorized as profit-taking amid slightly overbought conditions.
- The fundamental backdrop warrants some caution before placing aggressive bearish bets.
The GBP/JPY cross comes under some selling pressure on Tuesday and snaps a five-day winning streak to its highest level since August 2015, near the 191.30 region touched the previous day. Spot prices remain depressed through the mid-European session and currently trade around mid-190.00s, just above the overnight swing low.
Inflation in Japan eased slightly less than expected in January and intensified speculations around the Bank of Japan's (BoJ) move to abandon its negative interest rate policy. This, along with expectations that the Japanese government will intervene to prop up the domestic currency, provides a goodish lift to the Japanese Yen (JPY) and turns out to be a key factor that prompts some profit-taking around the GBP/JPY cross.
Apart from this, the British Pound's (GBP) relative underperformance against its Japanese counterpart could also be attributed to bets that the Bank of England (BoE) will start cutting interest rates soon. The expectations were bolstered by softer UK consumer inflation figures released last week. That said, the prevalent US Dollar (USD) selling bias is seen benefitting the GBP, which, in turn, might limit losses for the GBP/JPY cross.
Meanwhile, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling to confirm that the GBP/JPY cross has topped out in the near-term and before positioning for any meaningful corrective slide. That said, oscillators on the daily chart remain close to overbought territory and might prompt some long-unwinding trade, supporting prospects for additional intraday losses.
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