GBP/JPY: A corrective decline is upon us – DBS Bank

GBP/JPY has seen a staggering 35.7% rally from 124.09, late March 2020 lows. However, there are signs the cross having met its 61.8% Fibonacci retracement at 167.49 requires a downward correction to correct the excesses, Benjamin Wong, Strategist at DBS Bank, reports.

Seasonality studies typically show the cross adopts a weaker profile as it enters the month of May through August

“There are some formative nuances that requires a downward correction of excesses. In trading up to 168.43, the cross has exceeded 167.49, the 61.8% Fibonacci retracement of the 195.88-121.61 range grip that covered the Brexit referendum crisis into October 2016. On the technical panel, the cross is now straddling the top end away from the mean of standard deviations. A rising trendline resistance that drives up from 121.61 lows has as well played its part in retarding the move to 168.43.”

“A quick check on seasonality studies; a 10-year back-test shows GBP/JPY typically has a weaker profile as we enter the month of May through August.”

“The market remains on tenterhooks over the Bank of Japan’s (BoJ) policy where JPY weakness has been persistently driven by the BoJ’s determination to anchor yields within its Yield Curve Control target band. Until that changes, or on the vanguard of a Mi JPY intervention, any decline assumes a corrective tone.”