GBP/JPY holds above 186.00 after weak Japanese data

• GBP/JPY continues to trade in cycle highs near the 186.30 area.
• GBP continues to trade strong against its rivals due to hawkish bets on the BoE.
• Japanese weak economic data reinforces the Bank of Japan's (BoJ) dovish stance.

On Thursday, the GBP/JPY fell below 186.00 as investors seemed to be taking profits after eight straight days of gains. On the one hand, the Pound gains interest in hawkish bets on the Bank of England (BoE), while the Bank of Japan’s (BoJ) extremely dovish stance continues to pressure the JPY. Eyes on Japanese inflation figures from July to be reported on Friday.
The GBP continues to trade strong against its rivals, mainly driven by rising wages in the UK and hot inflation figures from July reported in Wednesday’s session. In that sense, the Pound gained interest on the back of hawkish bets on the Bank of England (BoE) as investors are now betting on a terminal rate of 6% which would mean an additional 75 bps of tightening vs last week where markets expected a terminal rate of 5.75%.

On the other hand, Japan reported soft data. Imports dropped in July by 13.5% and reported a higher than expected Trade Balance Deficit in the same month. In addition, Machinery Orders declined by 5.8% YoY in June, higher than expected. In that sense, as economic activity continues to weaken, the Bank of Japan (BoJ) won’t have any rush to pivot its monetary policy, which will leave the JPY vulnerable against its rivals.

GBP/JPY Levels to watch

The daily chart analysis indicates a bullish outlook for the GBP/JPY in the short term. The Relative Strength Index (RSI) is above its midline in positive territory, with a positive slope, aligning with the positive signal from the Moving Average Convergence Divergence (MACD), which displays green bars, reinforcing the strong bullish sentiment. Additionally, the pair is above the 20,100,200-day SMAs, suggesting that the bears struggle to challenge the bullish trend.

Plus, bullish signals on the four-hour chart indicate a strong buying momentum, establishing a marked bull dominance over sellers.

Support levels: 185.50, 185.00, 184.00.

Resistance levels: 187.00, 187.50, 188.00.

GBP/JPY Daily chart