GBP/JPY Price Analysis: Eases from six-week peak ahead of UK CPI, bullish bias remains

• GBP/JPY pulls back after rising to over a one-month top, though the downside seems limited.
• Bets that the BoE will cut rates sharply in 2024 undermine the GBP and exert some pressure.
• Dovish BoJ expectations and a bullish technical setup should limit losses ahead of the UK CPI.

The GBP/JPY cross retreats from its highest level since December 4, around the 186.35 area touched during the Asian session on Wednesday and for now, seems to have snapped a two-day winning streak. Spot prices, however, lack any follow-through selling and currently trade just below the 186.00 mark, nearly unchanged for the day, as traders look to UK Consumer inflation figures before placing fresh directional bets.

Heading into the key data risk, expectations that the Bank of Japan (BoJ) is unlikely to pivot away from its ultra-dovish policy settings continue to undermine the Japanese Yen (JPY) and act as a tailwind for the GBP/JPY cross. Meanwhile, slower wage growth in the UK reinforced market expectations that the Bank of England (BoE) will cut interest rates sharply this year. This, in turn, might hold back traders from placing aggressive bullish bets around the British Pound (GBP).

From a technical perspective, the recent solid rebound from the very important 200-day Simple Moving Average (SMA) and a subsequent breakout through the 100-day SMA favours bullish traders. Moreover, oscillators on the daily chart are holding comfortably in the positive territory and are still far from being in the overbought zone. This further validates the constructive setup and suggests that the path of least resistance for the GBP/JPY cross remains to the upside.

Hence, any meaningful downside might still be seen as a buying opportunity near the 185.40-185.35 region. This should help limit the downside for the GBP/JPY cross near the 185.00 psychological mark. That said, some follow-through selling could expose the weekly swing low, around mid-184.00s, below which spot prices could weaken further below the 184.00 round-figure mark and challenge the 100-day SMA resistance breakpoint, now turned support near the 183.50 zone.

On the flip side, bulls might now wait for a move beyond the 186.35 region, or the monthly peak, before placing fresh bets. The GBP/JPY cross might then aim to reclaim the 187.00 mark with some intermediate resistance near the 186.75-186.80 zone. The upward trajectory could extend further and lift spot prices to the next relevant barrier near the 187.55-187.60 region. en route to the 188.00 round figure and a multi-month top, around the 188.65 area touched in November.

GBP/JPY daily chart

Technical levels to watch