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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:

U.S. Private payroll growth slows sharply in July amid spike in virus

U.S. trade deficit fell to $50.7 billion from $54.8 billion in June

ISM Services PMI for July: 58.1 vs. 57.1 in June

Stimulus Talks Accelerate With Lawmakers Under Pressure to Act

Johnson & Johnson reaches deal with U.S. for 100 million doses of coronavirus vaccine at more than $1 billion

Oil prices at five-month high on big drop in U.S. crude stocks

Eurozone Services Business Activity Index: 54.7 in July vs. 48.3 in June

German business activity rebounds strongly in July

France sees sharp rise in services PMI: 57.3 in July vs. 50.7 in June

Fastest expansion of UK service sector activity for five years in July

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

GBP/JPY 1-Hour Forex Chart
GBP/JPY 1-Hour Forex Chart

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.