Like most Sterling pairs, GBP/JPY has calmed down after a strong rally last week. Is this a potential setup ahead of the BOE statement?
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on NZD/USD after better-than-expected NZ jobs update , so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:
Fed Mester speech at 9:00 pm GMT
New Zealand Inflation Expectations at 3:00 am GMT (Aug. 6)
Bank of England Interest Rate decision at 6:00 am GMT (Aug. 6)
What to Watch: GBP/JPY
After a strong rally at the end of July, GBP/JPY has fallen into a lull, trading between 137.85 and 139.00 over the past few sessions. That consolidated price action my end soon as we’ll get the latest monetary policy decision from the Bank of England very soon.
For the bulls on the pair, we’ve got a couple of potential entry options based on the most recent price action. First, for those waiting for a pullback, the bottom of the range around 137.85 down to the rising trendline marked on the chart could draw in buyers if the Bank of England hints that new stimulus measures are not likely for the foreseeable future.
This is the most likely scenario given the recent government stimulative measures and a rebound in U.K. economic sentiment lately, but there is some risk of negative rhetoric given the possibility of another lockdown in the U.K. A break and retest of the 139.00 is also a pattern to watch out for a potential long position in that scenario as well.
For the bears on this pair, we’ve got to see a combination of dovish sentiment from the BOE and some major global risk aversion catalysts before considering shorting this pair. This is a very low probability scenario for the next 24 hours, but if we do see it, watch out for a downside break in the pair before considering a short position.
With a daily ATR of around 115 pips, a break there makes the next potential support level of 136.65 (broken swing in July) a reachable target within the next session or two if we get a big surprise from the BOE.