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Despite UK Political Instability, the GBP/JPY Pair Is Flirting With a Bull Flag Breakout

January 13, 2022

Talking Points:

  • The upward momentum GBP/JPY is expected to continue towards 158.00.
  • UK Prime Minister Boris Johnson is feeling the brunt of his government’s covid restrictions.
  • On the 1 day chart, a bull flag confirmation will open the door towards 165.00.

The GBP/JPY is approaching 158.00, close to a three-month high, amidst a general US dollar sell-off that has masked the growing UK political crisis.

The dollar is licking its wounds after getting hammered on the ‘sell the fact’ flows in line with expectations for US inflation data. In December, the US CPI came in at 7.0 % year over year, which was in line with market expectations.

The dollar’s depreciation could also be due to mounting political concerns around America’s 40-year high inflation rate. This has fueled the USD/JPY drop, which presently trades around 114.50 vs 115.50 levels observed the day before.

On the GBP side of the tale, the cable has proven to be impervious to the UK’s building political upheaval, particularly in light of Prime Minister Boris Johnson’s blatant disregard for his government’s covid restrictions at a garden party during the country’s first lockdown in 2022.

For new trade momentum, investors will look forward to fresh covid updates from the UK, political developments on both sides of the Atlantic, and the release of the US PPI.

GBP/JPY is on the verge of confirming a bull flag breakout on the daily sticks, if the price closes the day above the falling trendline resistance of 157.11, according to short-term technical analysis.

The next upside target is the three-month highs, above which 158.00 will be tested, opening the way for a climb towards the pattern target above 165.00.

The 14-day Relative Strength Index (RSI) remains below the overbought level, indicating that there is still opportunity for further gains.

GBP/JPY Daily Chart:

 

On the other hand, immediate support awaits at Yesterday’s low of 156.76, below which bears will be looking for the psychological level of 156.50.

If the price drops much more, the falling trendline support at 155.72 will be exposed. Optimists’ last line of defence is at this stage.

 

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