Today, the Monetary Policy Committee (MPC) concluded its 2-day meeting and voted to hold the overnight bank rate at its historic low of 0.50% and maintained the asset purchase program at £375billion. The bank of England (BoE) provided a very simple statement in its official news release. (BoE statement).
The benign BoE risk event opened up further pound strength. The British currency was already firming to start the week, but stalled a bit ahead of the meeting and revived that short-term strength afterwards. Let’s take a look at the GBP/JPY.
In the 4H chart, we can see that the pair has been choppy since coming down to 175.77 in mid-January. Notice a slight coiling, or a descending triangle. Price action remained bearish-neutral. However, this week’s bullish price action is shifting the trend to a more neutral mode, and threatens to put in a month-long price bottom, which would suggest a medium-term uptrend, outside of the week-to-week swings.
With the a pending bullish outlook, we should point out a few things in the daily chart.
The daily chart shows that price has been hovering above 176 for the most part. Note the consolidation also above the 200-day SMA as well as the 61.8% fibonacci retracement level at 176.30. The fact that price has been consolidating here is a sign that GBP/JPY-bears have NOT taken over the market.
The GBP/JPY is threatening to extend above the current consolidation range. A break above 180 could be a good start. Then, we should not see price dip back below 178 (middle of the current range), or the bullish breakout will look false. In this scenario, the pressure will be back towards the 176.00 handle with risk of continuing lower.
Bullish Projection: If price does extend above 180 and hold above 178, we should limit bullish outlook to 184 (projecting 400 pips higher because the current consoliation range is around 400-pips wide: 180-176). We also see a falling speedline around 184 that should provide resistance as well.
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