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GBPJPY forms “three white soldiers” as market optimism returns

Japan USDJPY Nikkei 225

The GBPJPY pair bounced back today as even as the UK released weak GDP and industrial production data. It is trading at 135.90, which is higher than the open of 133.76.

GBPJPY bounce as markets ignore emerging risks

The GBPJPY pair dropped yesterday as traders worried about the emerging risks in the market. These risks include the simmering trade war between the United States and China, the challenges at the Korean Peninsula, and the rising risks of a second wave of coronavirus.

Today, investors are ignoring these risks as evidenced by the performance of European and American stocks. In Europe, the DAX index, FTSE 100, and the overall Stoxx 40 index are up by more than 1%. Meanwhile, futures tied to the S&P 500 and Nasdaq are up by almost 2%.

This is important for the GBPJPY pair because of the role of the yen as a safe haven currency. By this, the yen tends to move upwards when risks rise and fall when they fall. Indeed, the S&P 500 VIX index is down by more than 11% today.

UK reports weak data

Traders in the GBPJPY pair are also watching the weak economic data released from the UK. The data showed that the economy slumped by more than 20% in April. Industrial production and manufacturing production also fell by more than 20% in a sign that the lockdown had significant impacts on the economy. Looking ahead, traders will focus on the upcoming interest rate decision by the Bank of England.

In Japan traders focused on the $298 billion supplementary budget passed by the country’s upper house.

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GBPJPY technical outlook

On the four-hour chart, the GBPJPY pair has formed a three white soldiers pattern. It has also moved above the 50-day exponential moving averages and slightly above the 61.80% Fibonacci retracement level. This implies that bulls have prevailed, which means that the pair may continue rallying as they target the 78.6% retracement at 137.50.

On the flip side, a close below 135.50 will invalidate this prediction. This price is slightly below the 61.8% retracement level. It will also invalidate the three white soldiers pattern.

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