GBP/JPY trades flat ahead of UK CPI figures

• The GBP/JPY trades with mild losses near 181.40.
• Soft Chinese data limits Yen’s upside potential.
• Eyes on Japan’s Trade Balance Data on Thursday and England’s CPI figures on Tuesday.

On Monday, the GBP/JPY cross trades near 181.40 after tallying two consecutive days of gains. The JPY’s upside potential is limited as weak Gross Domestic Product (GDP) data from Q2 and mixed Retail Sales from June from China may continue to soften the Japanese economy while markets await inflation data from the UK on Tuesday.

In the previous sessions, the markets recently speculated on a change in the bank's Yield Control Curve (YCC) due to growing local wages, which favoured the JPY, but still, there are no hints of the Bank of Japan’s (BoJ) officials. Following soft Chinese economic data, investors will focus on Trade Balance data from Japan from June to continue assessing a possible pivot from the BoJ’s ultra-dovish monetary policy stance.

On the other hand, inflation data from the UK will be Tuesday’s highlight. The Consumer Price Index (CPI) from the UK from June is expected to have dropped to 8.2% YoY from the previous 8.7%, while the Core CPI is predicted to remain unchanged at 7.1% YoY. Meanwhile, BoE’s tightening expectations remain steady as the World Interest Rate Probabilities (WIRP) tool suggests that a 50 basis points (bps) hike is largely priced in for the August 3rd meeting, followed by 25 bps hike in September, November and at the beginning of 2024. 

In that sense, monetary policy divergences may continue to favour the GBP over the JPY.

GBP/JPY Levels to watch

The technical outlook for the GBP/JPY seems to have turned neutral for the short term. The Relative Strength Index (RSI) shows a flat slope while the Moving Average Convergence Divergence (MACD) remains in negative territory. To reignite momentum, the bulls must recover the 20-day Simple Moving Average (SMA) at 182.25.

Support Levels: 181.00, 180.50, 179.00.
Resistance Levels: 182.25 (20-day SMA), 182.50, 183.00.

GBP/JPY Daily chart