GBP/JPY bounces off over two-month low, defends 200-day SMA ahead of BoE

• GBP/JPY drifts lower for the third straight day and dives to over a two-month low.
• The JPY rallies amid hopes for a hawkish BoJ pivot and exerts heavy pressure.
• The downfall stalls ahead of the 200-day SMA as traders look to the BoE meeting.

The GBP/JPY cross remains under heavy selling pressure for the third successive day on Thursday and dives to its lowest level since early October during the Asian session. Spot prices, however, manage to recover over 60 pips in the last hour and currently trade around the 179.00 mark, still down 0.80% for the day.

A report suggested that the Bank of Japan (BoJ) may exit its negative rate policy sooner than anticipated, between January and March, and provide a strong boost to the Japanese Yen (JPY). Meanwhile, this week's mostly disappointing UK macro data reaffirmed market expectations that the Bank of England's (BoE) rate-hiking cycle could be reversed in 2024. This contributes to the British Pound's (GBP) relative underperformance and exerts additional downward pressure on the GBP/JPY cross.

Spot prices, however, find some support near the 178.35 area, ahead of a technically significant 200-day Simple Moving Average (SMA), as traders refrain from placing fresh bearish bets ahead of the crucial BoE meeting later today. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the GBP/JPY cross is to the downside. That said, the Relative Strength Index (RSI) on the daily chart has slipped below the 30 mark, flashing slightly oversold conditions.

Heading into the key central bank event risk, the technical setup makes it prudent to wait for some near-term consolidation or a modest bounce before the next leg down for the GBP/JPY cross. Any meaningful recovery move, however, might still be seen as a selling opportunity near the 180.00 psychological mark. This, in turn, should cap the upside for the GBP/JPY cross near the 180.80 strong horizontal support breakpoint, now turned resistance, which should now act as a key pivotal point.

On the flip side, the 200-day SMA, currently pegged near the 178.00 round-figure mark, is likely to protect the immediate downside. The said handle coincides with the October monthly trough, which if broken decisively will be seen as a fresh trigger for bearish traders. The GBP/JPY cross might then turn vulnerable to accelerate the downfall further toward the 177.40 intermediate support en route to the 177.00 mark and the late July swing low, around the 176.30 region.

GBP/JPY daily chart

Technical levels to watch