GBP/JPY slides back below 195.00 ahead of UK inflation data; downside seems limited

• GBP/JPY turns lower for the second straight day, though it lacks follow-through selling.
• Reduced bets for aggressive BoE rate cuts in 2025 underpin the GBP and lend support.
• Expectations that the BoJ will keep rates steady keep the JPY bulls on the defensive.
• The technical setup supports prospects for the emergence of dip-buying at lower levels.

The GBP/JPY cross attracts some intraday sellers following an Asian session uptick to the 195.50 region and turns lower for the second successive day on Wednesday. Spot prices, however, remain close to a nearly four-week high touched on Tuesday and currently trade just below the 195.00 psychological mark as traders now look to the UK Consumer Price Index (CP) report for a fresh impetus. 

A stronger UK wage growth data released on Tuesday justified the need for the Bank of England (BoE) to keep rates on hold at its meeting on Thursday and forced investors to trim their bets for three 25 basis points rate reductions next year. This might continue to act as a tailwind for the British Pound (GBP). Furthermore, expectations that the Bank of Japan (BoJ) will not hike interest rates at the conclusion of the December policy meeting keep the Japanese Yen (JPY) bulls on the defensive and should act as a tailwind for the GBP/JPY cross. 

From a technical perspective, this week's breakout through the very important 20-day Simple Moving Average (SMA) was seen as a fresh trigger for bulls. Moreover, oscillators on the daily chart have just started gaining positive traction and are still away from being in the overbought territory. This, in turn, validates the near-term positive outlook for the GBP/JPY cross and supports prospects for the emergence of dip-buyers at lower levels. That said, failure near the 61.8% Fibonacci retracement level of the October-December fall warrants caution. 

Nevertheless, any further decline is more likely to find support near the 194.45 horizontal zone ahead of the 194.00 mark, or the 50% Fibo. level. Some follow-through selling could make the GBP/JPY cross vulnerable to accelerate the fall towards the 193.40 intermediate support en route to the 193.192.95 region and the 38.2% Fibo. level, around the 192.60-192.55 zone.

On the flip side, sustained strength and acceptance above the 195.50 area, or the 61.8% Fibo. level, will reaffirm the positive outlook and lift the GBP/JPY cross to the 196.00 round figure. The momentum could extend further towards the 196.65 hurdle en route to the 197.00 mark and the 78.6% Fibo. level, around the 197.30-197.35 region.

GBP/JPY daily chart