British buyers of the Yen should wait a little longer to get a better rate if the chart of GBP/JPY behaves as we expect.

Currently it is showing the pair breaking out of a falling channel on the daily timeframe (see below), a sign the pair could be changing trend and about to move substantially higher, says Forex.com’s Razaqzada.

“In fact, this GBP/JPY has already ended its corrective trend that had started in early May, which means that the way has potentially been cleared for the move to begin. The Guppy’s (GBP/JPY) break outside of the short-term downward channel could be significant given that the long-term trend appears to be bullish,” said Razaqzada in a note on the pair.

The pair, which is currently in the 142s is likely to move up to targets at 144 and even 147 eventually.

The 50-day moving average is situated just above the current market level, however, and could present an obstacle to more upside, since major moving averages are levels of dynamic support and resistance in and of themselves.

“After a sharp bounce over the past day and a half, the GBP/JPY may pullback to a key support level such as 140.90 before potentially resuming its upward trend in early next week,” said the analysts acknowledging the possibility of a pull-back from the 50-day.

Fundamental Underpinning

The yen weakened on Friday after the head of the Bank of Japan (BOJ), Haruhiko Kuroda, said he and his colleagues had no intention of withdrawing stimulus measures yet.

Stimulus keeps interest rates low and floods the market with Yen reducing its value.

The Bank of Japan has one of the largest stimulus programmes in the world as it tries to stimulate lending, economic growth and inflation.

His comments came as something of a surprise given the BOJ’s upbeat assessment of economic conditions in its policy statement.

Kuroda added that the BOJ would not consider exiting stimulus measures unless inflation rose to its 2.0% target – it is currently at 0.4%.

Pound Sterling Set to Rise After BOE Vote Shocker

The BOJ’s stance stands in contrast to the more ‘trigger-happy’ Bank of England (BOE), although this has no doubt much to do with the higher inflation currently being experience in the UK.

At 2.9% the inflation rate in Britain is clearly making some people feel uncomfortable, including, no doubt the three out of eight members of the BOE monetary policy committee (MPC) who voted to increase interest rates at Thursday’s BOE meeting.

The Pound rose after the surprise vote as prior to the meeting only one dissenter – Kirsten Forbes – had been expected to vote for higher interest rates, not three.

Currencies appreciate from higher interest rates as they attract more inflows of capital.

The Pound may have higher to go given markets are still not pricing in a rise in interest rates until the second quarter of 2019, according to capital economics.

Given the close vote on Thursday, however, it seems likely rates will rise much more quickly.

“It is surprising therefore that markets still think the MPC will leave rates on hold until the second half of 2019. While there are some good reasons why the MPC should be in no rush to raise rates, we still think that the first hike will come well before markets currently expect,” said Capital’s Paul Hollingworth.

Indeed, Capital’s Hollingworth said that he thought the Bank would start to raise interest rates by the middle of 2018 instead.

Given the distribution of the voting at Thursday’s meeting it seems likely that interest rates will rise more quickly than previously envisaged, which could well propel Sterling higher as indicated by Razaqzada’s technicals.

We agree that the breakout from the down-sloping channel is a bullish sign, and the normal minimum target for these breakouts can be calculated by taking the height of the channel at its widest and projecting it higher from the point of the break.

This gives a reliable upside target of roughly 144.50 in line with Razaqzada’s first target.