GBP/JPY price action being squeezed within pennant structure, break out on the cards

• GBP/JPY has been consolidating within recent ranges on Tuesday with FX market focus mostly elsewhere.
• Price action has been squeezed in recent days within the confines of a pennant, with a breakout on the cards.

GBP/JPY has for the most part seen a day of consolidation, with the price action remaining well contained within this week’s low-153.00s to low-154.00s range. At present, the pair is trading around 153.80, slightly to the north of its 50-day moving average (at 153.58), which has been offering gentle support throughout the week. To the upside, the 21DMA is getting closer and currently resides at 154.21.

Price action over the last few days has been squeezing itself into a pennant formation. That suggests a breakout to either the upside, where a test of recent highs in the mid-154.00s is on the cards, or to the downside, where a test of recent lows around 152.500 would be likely.

Driving the day

GBP and JPY have not been at the centre of FX market focus on Wednesday. Rather focus has been on NZD, which got battered after a more dovish than expected 25bps rate hike from the RBNZ, and a strong USD, boosted by good US macro data and hawkish Fed rhetoric. The yen was supported early in the European session amid an elevated demand for havens amid concerns about the state of the European Covid-19 outbreak and tougher lockdowns. This haven bid seems to have eased in the US session, however, as US equities recovered back into positive territory.

FX markets largely ignored comments from dovish BoE member Silvana Tenreyro, who avoided saying explicitly whether she would support a rate hike in December or February, rather saying that she would instead be watching the data. She did concede that policy would require a modest tightening in the coming several quarters, however.