GBP/JPY approaches some key technical levels in the downside run this week
The pair is down for its fourth consecutive day as the yen remains the best performing major currency in trading this week. The pair managed to break above its 200-day MA (blue line) towards the end of last week but the move has since fizzled over the past few days.
There are question marks surrounding why the yen has moved in such fashion over the past few days but I would still argue that the overall play is reflective of the supposed breakout in Treasury yields at the end of last week, which has completely faded now.
Here's a better look of that correlation as seen in USD/JPY as a baseline for yen pairs:
With Treasury yields settling back into its April to May range once again, the question now flips back towards risk sentiment in general.
The pound side of the equation has shown much resilience as of late despite concerns surrounding Brexit and the UK economy, and the lack of a pullback is certainly something to consider in that regards over buyers' conviction.
So, the only question is whether or not there will be a further pullback in stocks/risk that will help to underpin the yen in the coming sessions.
The pullback in stocks/risk today may be overdue but amid the approach to key technical levels, this is where the real test begins. Let's take a look back at GBP/JPY in this case.
Price action broke below the 200-day MA (blue line) earlier in the week and is now testing a confluence of key support levels in trading today:
1) 100-day MA (red line) @ 135.76
2) 38.2 retracement level @ 135.76
3) Swing region @ 135.50-75
For buyers, keeping above those levels highlighted will be an important victory from a technical perspective. For sellers, breaking below that opens up the path towards further downside pressure in the pair under 135.00.
In terms of further support, the 50.0 retracement level @ 134.53 will be the next in line to watch should the support levels above give way.
Much like most other currency pairs right now, there is a decent pullback from the recent run amid the Fed yesterday and also equities retracement today, but the question now is whether or not the pullback can lead to something bigger as we approach key levels.
