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GBP/JPY – Testing highs ahead of key UK economic data

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  • UK wage growth key to BoE sustainably hitting inflation target
  • GBPJPY struggling near recent highs
  • Divergence points to loss of momentum

The coming days offer several important data points for the UK that could help determine when the Bank of England starts cutting interest rates and, by extension, where the currency is headed in the coming months.

The jobs report on Tuesday is always widely followed but with the unemployment component less reliable than normal, it’s the average earnings that will matter most.

At 6.5% in November, it’s currently running far too high to enable inflation to fall to 2% on a sustainable basis and the BoE will be hoping that it will subside considerably in the coming months, as is expected to have started in December.

A double top at the November and January highs?

The pound has performed very well against the yen recently, as many currencies have, recouping all of December’s losses to surpass the November peak.

GBPJPY Daily

Source – OANDA

It is continuing to struggle near 189 where it has repeatedly now run into resistance. And on this occasion, it’s done so on much weaker momentum, with there being a notable divergence between the stochastic and MACD, and price.

This could potentially set up a double top in the short term, with the neckline falling at the 1 February low – around 185.23 – a break of which would be a bearish development.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
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