GBP/JPY retreats from two-week tops around 154.70s drops below 154.00

• Despite that UK’s high inflation report increased the odds of a BoE’s rate hike, the British pound fell against the Japanese yen.
• UK’s Consumer Price Index (YoY) for October rose by 4.2%, higher than the 3.9% estimated.
• GBP/JPY: Failure at 154.00 could pave the way for a further correction towards 153 or below.

The British pound gave back some of its weekly gains, despite a higher than expected jump in UK’s inflation. The GBP/JPY declines 0.10%, trading at 153.96 during the day at press time. 

On Wednesday in the European session, the Office for National Statistics (ONS) in the UK revealed that CPI for October rose by 4.2%, higher than the 3.9% estimated on a yearly basis, spurring expectations that the December Bank of England’s (BoE) monetary policy meeting, could witness the first rate hike by a major economy central bank, other than the Reserve Bank of New Zealand.

The GBP/JPY in the overnight session slid from 154.70 two-week tops, below the 154.00 as market sentiment dampened throughout the day. That hurt risk-sensitive currencies like the GBP, the AUD, and the NZD, favoring safe-haven peers like the Japanese yen.

Moving back to UK’s macroeconomic data, the Core Consumer Price Index (Core CPI), which excludes volatile items like food and energy for October, also beat estimations, increasing by 3.4%, higher than the 3% foreseen by economists. Wednesday’s macroeconomic data coupled with strong UK employment figures on Tuesday raised the odds of a rate hike by the BoE. That outcome would boost the prospects of higher prices for the British pound, as spreads between the UK and Japan would widen.

GBP/JPY Price Forecast: Technical outlook

The daily chart shows the long up-wick on Wednesday’s candlestick price action, which reached a daily top around 154.73, but later retreated beneath the 154.00 figure. Also, GBP bulls failed to break above the top-trendline of a bullish flag, exposing the 50-day moving average (DMA) at 153.42 as the first support level. If the pair extends its correction, the following demand zone would be 153.00, followed by the 100-DMA at 152.64.

Contrary, if GBP/USD bulls reclaim the 154.00 figure, that would expose the November 17 high at 154.73 nearby the top-trendline of the bullish-flag pattern, followed by 155.00, and then the June 24 high at 155.14.