- GBP/JPY remains under heavy selling pressure for the fourth day in a row on Friday.
- Dismal UK retail sales fuel recession fears and weigh on sterling.
- The risk aversion momentum benefits the haven JPY and also contributes to the selling bias.
The crossing GBP/JPY it continues this week’s sharp decline from levels slightly above 167.50, ie the highest level since June 22, and continues to lose ground for the third day in a row on Friday. The downward trajectory drags the pair to a two-week low during the first half of the European session, although the bulls show some resistance below 163.00.
Sterling’s relative underperformance comes amid a worsening outlook for the UK economy, further fueled by disappointing macroeconomic data on Friday. The UK Office for National Statistics reported that monthly retail sales posted the biggest drop since December 2021 and fell much more than expected in August. This, in turn, adds to fears of an impending recession, weighing on the British pound and putting downward pressure on the GBP/JPY cross.
Aside from this, the risk appetite drive drives some haven flows into the Japanese yen and aggravates the bearish pressure surrounding the cross. Rapidly rising interest rates, coupled with headwinds stemming from fresh COVID-19 cuts in China and the protracted war between Russia and Ukraine, have fueled concerns of a further global economic downturn. This has caused investors to lose their appetite for risky assets, which has been reflected in a further decline in equity markets.
The ongoing slide, meanwhile, seems unaffected by a wide divergence in the monetary policy stance adopted by the Bank of Japan and other major central banks. Indeed, the Bank of Japan lags behind other major central banks in the process of policy normalization and remains committed to continuing its monetary easing. This has been a key factor behind the yen’s recent decline since the beginning of this year, and likely explains the mild uptrend in the GBP/JPY cross.
From a technical point of view, the pair has just touched the 50-day simple moving average (SMA) at 163.20, and this may explain why the bulls are coming in to support the price. The long-term trend is mildly bullish, so while the current short-term trend is bearish, traders should err on the side of caution before aggressively shorting. However, a daily close or open below the 50 DMA would fuel the move down and see the bears prepare to push the price towards the bottom of a long-term channel and the 200 SMA around 160.00. . At that level the bulls are expected to re-enter the fight to make another resistance.
It will now be interesting to see if the bears can maintain their dominance as the focus now shifts to the risks of next week’s key central bank events. Both the Bank of Japan and the Bank of England are scheduled to announce their respective policy decisions on Thursday. The result will play a key role in influencing the GBP/JPY cross and help determine the next leg of a directional move.
Technical levels
Source: Fx Street
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