GBP/JPY clings to 156.00 on retreat from 158.20 highs

• The pound retreats further from 158.20 highs, reaching levels sub 156.00.
• Sterling's rally loses steam as BoE tightening expectations fade.
• GBP/USD is now testing support at 156.00.

The British pound has depreciated for the second consecutive day on Friday, retreating further from multi-year highs at 158.20, to seek support at 156.00 area. The pair is set to post a 0.6% weekly reversal, after having surged about 4.5% over the previous two weeks.  

GBP loses momentum as BoE hike expectations fade

Pound’s rally has lost steam this week, as the market shifted its focus to the surging inflation and global supply restrictions, with the expectations of earlier than expected rate hikes by the Bank of England taking a backseat. Investors’ hopes that consumer inflation pressures would force the BoE to accelerate its monetary tightening plans have been pushing GBP crosses higher across the board over the last weeks.

Beyond that, news reporting that the EU is weighing to terminate the Brexit deal if the standoff with the UK about the Northern Ireland's border continues, has added negative pressure on the sterling. 

On the macroeconomic front, releases in the UK have been mixed on Friday. Services and manufacturing activity performed better than forecast in September, according to the Markit/CIPS Purchasing Managers’ Indexes, whereas retail consumption contracted beyond expectations, increasing concerns about the impact of the supply crisis on the country’s economic growth.

GBP/JPY: testing support at 156.00

Pound’s reversal has extended to test support at 156.00 (April 21 high). Below here, bearish momentum might gain traction with next potential targets at 155.35 (Intra-day level) and 154.80 (38.2% Fibonacci retracement of October’s rally.

On the upside, a bullish reaction from current levels should extend beyond 156.60/70 (Oct. 18, 21 lows) and retest intra-day highs at 157.60 before setting course towards 158.20 (Oct. 19, 21 highs).

Technical levels to watch