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Risk sentiment may be the name of the game in the next trading sessions as a lack of top-tier data releases puts the spotlight on broader economic themes.

How will today’s trends affect GBP/JPY’s Head and Shoulders pattern?

Before moving on, ICYMI, yesterday’s watchlist checked out EUR/CAD’s range resistance after the Eurozone printed weak PMIs and Canada released strong economic data. Be sure to check out if it’s still a valid play!

And now for the headlines that rocked the markets in the last trading sessions:

Fresh Market Headlines & Economic Data:

U.S. manufacturing PMI fell from 57 to 52.4 in June, the slowest since June 2021

U.S. services PMI down from 53.4 to 51.6 in June vs. 53.5 expected

U.S. initial jobless claims clocked in at 229K vs. 227K expected

Powell concedes Fed may trigger a recession, calls soft landing ‘very challenging’

ECB member Nagel: “rate hikes could become necessary to get inflation under control”

European Union grants candidate status to Ukraine and Moldova

GfK U.K. consumer confidence sinks to a new record low of -41 in June

Japan’s 2.1% core inflation tops BOJ target for 2nd month in May

UK retail sales dropped by 0.5% in May as price rises force people to cut food shopping

Germany’s IfO business climate fell from a three-month high of 93 to 92.3 in June

Upcoming Potential Catalysts on the Forex Economic Calendar:

RBA Gov. Lowe to participate in an online discussion at 11:30 am GMT
FOMC member Bullard to talk inflation at 11:30 am GMT
Revised UoM consumer sentiment report at 2:00 pm GMT

Use our new Currency Heat Map to quickly see a visual overview of the forex market’s price action! 🔥 🗺️

What to Watch: GBP/JPY

GBP/JPY 4-hour Forex Chart

GBP/JPY 4-hour Forex Chart

There are no top-tier economic data reports scheduled for release during the U.S. session, so traders will more likely extend or break the overall risk-taking theme in the markets.

In case you were too busy planning your weekend trip, Asian and early European traders took their cues from U.S. session traders. Specifically, they bought “riskier” assets on a round of bargain hunting and speculations that the sharp weekly drop in crude oil prices could lead to “peak” inflation.

GBP/JPY found support from the 164.80 area that lines up with the 100 SMA on the 4-hour time frame.

And that’s how the pair is now forming a possible Head and Shoulders pattern!

Will we see a downside breakout? Or will the 100 SMA hold as support?

Fundamentals aren’t favoring GBP bulls rn. Not only did the U.K.’s retail sales drop in May, but consumer confidence also just hit a new record low in June.

In short, consumers are NOT keeping calm and carrying on with their buying habits amidst higher prices and recession prospects.

But BOJ reaffirming its commitment to easy policies despite inflation rising above its 2.0% target for a second month is not attracting JPY bulls either.

This is why I’m watching GBP/JPY’s reaction to the 100 SMA. A clear break above 165.00 would point to a retest of the 167.00 or 168.00 previous resistance zones.

GBP/JPY dipping below the 165.00 “neckline” levels, however, could drag the pair to the 163.00 or 161.00 previous areas of interest.

What do you think? Which way will GBP/JPY go?