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Summary: Japanese central bank officials believe that there is no urgency to cancel the world's last remaining negative interest rate policy this month, as they have not yet seen evidence of wage growth sufficient to support sustainable inflation. This may be a key factor driving the recent uptrend in GBPJPY.

Fundamentals

The GBPJPY experienced a sharp 3.5% drop last Thursday, reaching 178.51 and closing at 181.45, marking its single-day trading performance of the year. The asset faced significant sell-offs following signals that the Bank of Japan might exit its current ultra-loose monetary policy.

However, as with the two previous instances of substantial sell-offs, the asset quickly garnered substantial buying interest on dips. Yet, unlike the previous two occasions, the asset may find it challenging to reach new highs.

Market expectations now anticipate the BOJ to end its negative interest rate policy in January 2024, potentially accelerating sell-offs in the asset. Previous expectations were for this action to occur in July-September 2024 or later (with July-September being the most likely timeframe). However, the current outlook suggests that the BOJ is unlikely to take action in December this year and maintains the view that the yield curve control plan will end between April and June next year, with April being the most likely timeframe.

Several pieces of news suggest a greater likelihood of a benign cycle between wages and prices in the spring during labor-management negotiations next year. Insiders state that BOJ officials believe there is not a high cost to waiting for more information to confirm robust wage growth. They also note that the BOJ will make a final policy decision after assessing all available data from now until the decision, including the Tankan survey scheduled for Wednesday and the financial market conditions up to the last minute.

The GBPJPY currency pair currently has an overall bullish momentum, indicating a potential bullish rebound from the first support level to the first resistance level.

First support level at 178.38: This level is identified as a significant historical support level, representing a multi-wave low support, signifying historical significance as an area where prices have found support. It represents a potential area for buying on dips.

First resistance level at 184.60: The first resistance level is considered a retracement resistance, suggesting possible selling interest that may act as an obstacle to further upward movement.

Second resistance level at 188.34: The second resistance level is seen as a volatile high-level resistance, indicating historical selling pressure and potential reversal levels.

Technical Analysis

The GBPJPY continued its rebound from the 178.51 level today, but the outlook remains unchanged. The upside potential of the rebound is expected to be limited, with bulls testing the 184.44 support-turned-resistance level, potentially leading to another decline.

On the downside, breaking below the minor support at 181.66 will first retest the 178.68 support. Holding below 188.63 will restore the downtrend, with the next target being the 38.2% Fibonacci retracement level from 148.93 to 188.63 at 173.46.

From a broader perspective, while the medium-term top is at 188.63, there are no clear signs of a long-term bearish trend reversal. As long as the 55-week SMA (currently at 175.67) remains intact, the price action testing the 188.63 level should be considered a corrective move. The larger uptrend, starting from 123.94 (2022 low), may resume in the later stages. In terms of trading strategy, it is recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 184.40

Target Price: 180.29

Stop Loss: 185.90

Valid Until: 2023-12-25 23:55:00

Support: 182.66, 181.56, 180.32

Resistance: 184.48, 185.08, 185.80