Upside Breakout in GBP/JPY Ahead?

 Guppy traders are back to battling it out at a major price resistance pattern. Will the latest monetary policy statement from the Bank of England spark a breakout or is this another selling opportunity for the bears?

Upside Breakout in GBP/JPY Ahead?

The Bank of England just gave their latest monetary policy statement, mostly meeting expectations that they would raise GDP and inflation numbers. They also voted 7-1 to maintain the quantitative easing program at £895B as expected.  The Monetary Policy Committee also commented on the potential to reduce asset purchases, sparking speculation that we may see a rate hike as soon as 2023 and a gradual rate hike to 0.5% by 2024.

This event sparked a bullish reaction in Sterling on the session, again, an expected reaction to this scenario. And with the covid-19 situation steadily improving and the removal of restrictions, sentiment in the British pound may continue to improve going forward. In this scenario and one where the U.K. is able to keep case counts down, GBP/JPY looks to move higher in the longer-term, at least as long as broad risk sentiment doesn’t swing negative.

Japan seems to be in the opposite situation as emergency conditions as cases surge across the country. Expectations are now that Japan may take actions to contain the spread, which would likely slow their already tepid recovery.

From a price action standpoint, technical traders may be seeing the same thing on the daily chart above, which shows another retest of the falling trendline marking the ‘highs’, after an inverse head and shoulders formation. If the market can break and hold above that area, we could see more bulls jump in in the following weeks.

So, we’re on the lookout for a bullish position in GBP/JPY if the market breaks above the falling ‘highs’ and if the U.K. continues to recover from the pandemic. Broad risk sentiment is important too, and as long as we don’t see a reason for a large swing to risk aversion sentiment, Sterling has a good shot of outperforming the Japanese yen for now.

What do you all think? Will GBP/JPY be able to break above the falling trendline? Or will risk-off sentiment return and draw in traders out of Sterling and into the Japanese yen. Let me know in the comments section below!

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