This week features critical economic events, including PMI releases across major economies, UK labor market and inflation data, and interest rate decisions from the Federal Reserve, Bank of England, and Bank of Japan. The GBPJPY has shown an upward trajectory supported by technical indicators, with potential resistance at 195.229 and beyond. Fundamentals reveal the UK economy is struggling with contraction and recession risks, while Japan's BOJ is expected to hold rates but faces pressure to normalize policy amid yen volatility and inflation concerns. These developments will shape market sentiment and trading opportunities in the days ahead.
Overview
This week features critical economic events, including PMI releases across major economies, UK labor market and inflation data, and interest rate decisions from the Federal Reserve, Bank of England, and Bank of Japan. The GBPJPY has shown an upward trajectory supported by technical indicators, with potential resistance at 195.229 and beyond. Fundamentals reveal the UK economy is struggling with contraction and recession risks, while Japan's BOJ is expected to hold rates but faces pressure to normalize policy amid yen volatility and inflation concerns. These developments will shape market sentiment and trading opportunities in the days ahead.
Key Economic Events
Monday 10:15 am (GMT+2) - France: Flash Manufacturing PMI (EUR)
Monday 10:15 am (GMT+2) - France: Flash Services PMI (EUR)
Monday 10:30 am (GMT+2) - Germany: Flash Manufacturing PMI (EUR)
Monday 10:30am (GMT+2) - Germany: Flash Services PMI (EUR)
Monday 11:30 am (GMT+2) - UK: Flash Manufacturing PMI (GBP)
Monday 11:30am (GMT+2) - UK: Flash Services PMI (GBP)
Monday 16:45 (GMT+2) - USA: Flash Manufacturing PMI (USD)
Monday 16:45 (GMT+2) - USA: Flash Services PMI (USD)
Tuesday 09:00 am (GMT+2) - UK: Claimant Count Change (GBP)
Tuesday 15:30 (GMT+2) - Canada: CPI m/m (CAD)
Tuesday 15:30 (GMT+2) - USA: Retail Sales m/m (USD)
Wednesday 09:00 am (GMT+2) - UK: CPI y/y (GBP)
Wednesday 21:00 (GMT+2) - USA: Federal Funds Rate (USD)
Wednesday 23:45 (GMT+2) - New Zealand: GDP q/q (NZD)
Thursday Tentative (GMT+2) - Japan: BOJ Policy Rate (JPY)
Thursday 14:00 (GMT+2) - UK: Official Bank Rate (GBP)
Thursday 15:30 (GMT+2) - USA: Unemployment Claims (USD)
Friday 09:00 am (GMT+2) - UK: Retail Sales m/m (GBP)
Friday 15:30 (GMT+2) - Canada: Retail Sales m/m (CAD)
Friday 15:30 (GMT+2) - USA: Core PCE Price Index m/m (USD)
Technical Analysis
Since reaching a trough at 188.067 on December 3, the GBPJPY currency pair has reversed direction, driven by a "failure swing" pattern. Specifically, the trough at 190.587 did not drop below the previous low, leading to prices surpassing the key resistance level, 192.360. This rally signaled the potential for further increase. The 50-period Exponential Moving Average (EMA), the Momentum oscillator, and the Relative Strength Index (RSI) reinforce the upward movement. Notably, prices have emerged above the 50-period EMA, the Momentum Oscillator is reading above the 100 threshold, and the RSI is above the 50 baseline, all confirming the upward trajectory.
Potential Upside Targets
Should the bulls maintain market control, traders may direct their attention toward the four potential resistance levels below:
195.229: The initial resistance is 195.229, which represents the 261.8% Fibonacci Extension drawn from the swing high, 192.360, to the swing low, 190.587.
197.567: The second price target is identified at 197.567, corresponding to the weekly resistance, R2, estimated using the standard Pivot Points methodology.
199.793: The third target is established at 199.793, aligning with the daily high marked on October 30.
208.110: An additional price target is estimated at 208.110, which corresponds to a weekly high from July.
Potential Downside Targets
Should the sellers take market control, traders may consider the four potential support levels listed below:
193.171: The first level of support is estimated at 193.171, representing the weekly Pivot Point, PP, calculated using the standard methodology.
192.360: The second support level is determined at 192.360, reflecting the swing high marked on December 6.
190.587: The third support level is seen at 190.587, corresponding to the swing low from December 9.
188.775: An additional downward target is observed at 188.775, corresponding to the weekly support, S2, estimated using the standard Pivot Points methodology.
Fundamentals
The UK economy faces mounting challenges, with GDP falling 0.1% in both October and September, marking two consecutive months of contraction and putting the country on "recession watch." Analysts highlight the struggling manufacturing sector and weakened economic sentiment, worsened by recent government policies. Despite some positive signs, such as improving consumer confidence, growth prospects remain uncertain. The Bank of England may soon shift focus to downside risks. Market impacts include a dip in the FTSE 100 and a weaker pound against major currencies.
On the other hand, a majority of economists polled expect the Bank of Japan (BOJ) to maintain its benchmark interest rate at 0.25% after this week's policy meeting, with many forecasting a rate hike in January. The BOJ is awaiting clearer trends in domestic wages, spending, and global economic policies. While inflation remains above the BOJ's 2% target, economic uncertainties, including weak household spending and fluctuating factory output, may delay policy normalization. The yen, currently trading at around 154 per dollar, is a key factor, with analysts projecting it to strengthen to 147.4 by the end of 2025 as rates eventually rise.
Conclusion
In conclusion, this week's mix of key economic data, interest rate decisions, and technical movements in the GBPJPY highlights a pivotal moment for market participants. While the UK faces economic challenges and recession risks, Japan's monetary policy remains under scrutiny as inflation pressures persist. With potential opportunities in both fundamental and technical strategies, traders should monitor developments closely as they navigate a complex and evolving market landscape.