GBP/JPY Price Analysis: Bulls seek to retake the 20-day SMA as bears lose steam

The GBP/JPY rose towards 181.80, showing 0.80% gains on the day as bears are giving up.
British yields are rising, but BoE tightening expectations remain subdued.
Chinese economic stimulus announcements may provide support to the JPY.

On Tuesday, the GBP gained ground against the JPY, mainly because of rising British yields, which helped the pound trade with gains against most of its rivals. On the other hand, the JPY traded mixed against most of its rivals while markets eagerly await the Bank of Japan (BoJ) decision on Friday.

Ahead of next week’s Bank of England (BoE) decision, markets are not so confident that the bank will deliver a 50 basis point (bps) hike but discount 25 bps hikes in September, November and February, which would see the terminal rate at 5.75%. It’s worth noticing that lower inflation figures reported from June and the fears of the UK slipping into a recession are making investors bet on a dovish BoE. However, Core inflation remains high, so the bank will likely attach to their hawkish policy making investors worry about how it could further weaken the economy.

On the Japanese side, the Bank of Japan (BoJ) will meet on Friday and deliver fresh economic projections. As for now, markets expect the bank to stick to its dovish stance, so monetary policy divergence could further weaken the JPY. In addition, the updated protections will be key as they will help investors to model their expectations regarding the bank’s next steps. On the positive side for the Yen, the Chinese government announced that they would deliver an economic stimulus to the local economy to bolster local demand, which would benefit the Japanese economy and the JPY.

GBP/JPY Levels to watch

The daily chart shows a neutral to bullish outlook for the short term. On the positive side, the Relative Strength Index (RSI) is in positive territory, with a slightly positive slope, while the Moving Average Convergence Divergence (MACD) indicator prints mild fading red bars, indicating a fading bearish momentum. On the flip side, the buyers lost the 20-day Simple Moving Average (SMA), so as long as they don’t retake it, the upside potential is capped.

Resistance levels: 182.05 (20-day SMA),182.50,183.50.
Support levels: 181.00, 181.50,180.00.