GBP/JPY Price Analysis: Dives to over two-week low ahead of BoE, seems vulnerable

• GBP/JPY remains under heavy selling pressure for the second successive day on Thursday.
• The divergent BoE-BoJ policy expectations, along with geopolitical risks, weigh on the cross.
• The technical setup favours bears and supports prospects for a further depreciating move.

The GBP/JPY cross drifts lower for the second straight day on Thursday – also marking the third day of a negative move in the previous four – and drops to a two-and-half-week low during the first half of the European session. Spot prices currently trade around mid-185.00s and seem vulnerable to slide further ahead of the Bank of England's (BoE) monetary policy decision later today.

Heading into the key event risk, expectations that the UK central bank will keep the door open for a potential interest rate cut in May, along with the less dovish-inspired US Dollar (USD) buying, weigh heavily on the British Pound (GBP). The Japanese Yen (JPY), on the other hand, continues to draw support from the Bank of Japan's (BoJ) hawkish tilt last week and geopolitical risks. This further contributes to the heavily offered tone surrounding the GBP/JPY cross.

From a technical perspective, the overnight close below the 23.6% Fibonacci retracement level of the rally in January was seen as a fresh trigger for bearish traders. Moreover, oscillators on the daily chart have just started drifting in negative territory and suggest that the path of least resistance for the GBP/JPY cross is to the downside. Hence, a subsequent slide towards testing the 38.2% Fibo. level, around the 185.00 psychological mark, looks like a distinct possibility.

A convincing break below the latter will set the stage for an extension of the recent pullback from the vicinity of the 189.00 mark, or the highest level since August 2015 touched last month. The GBP/JPY cross might then accelerate the slide towards the 184.50 intermediate support before eventually dropping to sub-184.00 levels, representing the 100-day Simple Moving Average (SMA) and the 50% Fibo. level confluence region.

On the flip side, the 186.00 round figure now seems to act as an immediate hurdle ahead of the 23.6% Fibo. level breakpoint, around the 186.45-186.50 region. A sustained strength beyond the latter will suggest that the recent corrective decline has run its course and shift the near-term bias back in favour of bullish traders. The subsequent move up has the potential to lift the GBP/JPy cross beyond the 187.00 mark, towards the 187.40 hurdle.

GBP/JPY daily chart

Technical levels to watch