GBP/JPY – Big test above

Can BoE propel it higher?

We’ve seen a bit of a recovery in GBPJPY over the last couple of weeks as risk appetite has rebounded in the markets. But how much further can it run?

What’s helped the move more recently is improving odds on a BoE rate hike on Thursday. It’s still widely expected that the MPC will vote against hiking this time and then do so in February when they have a much clearer view on omicron and the economy, but it’s now expected to be much closer.

A hike could propel the pound higher in the near term and put key resistance under significant pressure. The big test above is 152.50, where the 61.8 fib coincides with recent support, the upper end of the 200/233-day SMA, and the lower end of the 55/89-day SMA.

A rotation off here could be a very bearish signal as it would confirm the initial break into bearish territory and suggest the recent correction is just that rather than something more significant.

It wouldn’t be the first time that the BoE has put off raising rates, despite leading us to believe otherwise. I don’t think that would be the case this time though. Rather, they could hike in order to follow through on those warnings and once again catch the market a little off-guard.

Either way, with the BoE and BoJ rate decisions to come, among many others, the next couple of days will be action-packed which could bring plenty of volatility.

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