GBP/JPY teases a bull flag breakout despite UK political uncertainty

• GBP/JPY is looking to extend the bullish momentum towards 158.00.
• UK PM Johnson is bearing brunt of violating his government's covid rules.
• Bull flag confirmation on the 1D chart will open doors towards 165.00.

GBP/JPY is advancing towards 158.00, trading close to three-month highs amid a broad meltdown in the US dollar, which overshadowed the brewing UK political turmoil.

At the momentum, the greenback is licking its wound after being smashed on ‘sell the fact’ flows on in-line with expectations US inflation data. The US CPI arrived at 7.0% YoY in December, matching the market consensus.

Mounting political pressures surrounding the 40-year high inflation in America could also be attributed to the dollar’s downfall. This has fuelled the correction in USD/JPY, as it now trades close to 114.50 vs. 115.50 levels seen a day before.

On the GBP-side of the story, the cable is so far resilient to the brewing political turmoil in the UK, especially in light of PM Boris Johnson flouting his government's covid rules, in a garden party during the country’s first lockdown in 2022.

Looking forward, markets will await fresh covid updates from the UK, political developments on both sides of the Atlantic and the US PPI release for fresh trading impetus.

From a short-term technical perspective, GBP/JPY is on the verge of confirming a bull flag breakout on the daily sticks, should the price close the day above the falling trendline resistance of 157.11.

The next upside target is seen at the three-month highs, above which 158.00 will be put to test, opening doors for a rally towards the pattern target measured near 165.00.

The 14-day Relative Strength Index (RSI) is sitting beneath the overbought region, allowing room for more upside.

developing story ...

GBP/JPY daily chart

On the flip side, immediate support awaits at Wednesday’s low of 156.76, below which the 156.50 psychological level will be on the sellers’ radars.

The additional downside will expose the falling trendline support at 155.72. That level is the last line of defense for optimists.

GBP/JPY additional levels to watch