A rally in the GBPJPY pair since late-June was at risk of running out of steam after the price pulled back from the 140.00 level. The same price level led to a correction in early-June, and there is potential for a double top formation this time. The economic calendar is very light for both the British Pound and Japanese Yen this week, so we may consolidate until a catalyst arrives.
Japan has been seeing a second wave of coronavirus cases since late-June and this has led to the Pound gaining against the Yen, while the country was also suffering from a heatwave which is reported to have killed 130 people, many of whom were over the age of 70.
On the economic front, it should be noted that Japan’s economy was 7.8% lower in the 3 months to June, yet the UK’s sank 20% so there is a possibility that the Pound peaked for now. Britain has also seen its own bout of virus cases recently with local lockdowns being enforced in Scotland and the North of England.
As we leave August and approach the winter months there is also a chance of colder weather and the Japanese Yen could provide a safe haven again if stocks are gripped by a second coronavirus wave. This dynamic led to the GBPJPY crashing to lows just shy of 124.00 Yen at the mid-March virus lows in financial markets.
Friday’s sell-off at 140 sees the GBPJPY pair testing a steep uptrend line from the late-June low and the preferred risk/reward trade here, according to me, would be a short position using 140.00 as a stop level.
If we apply Fibonacci levels to the chart we can see that 132-134 are potential support levels ahead of 130.00, which would need to hold in order to avoid a retest of the March lows.