GBP/JPY closed below 5-DMA for the first time since April 18

GBP/JPY ended yesterday below the 5-DMA for the first time since April 18, suggesting the markets did not buy the Bank of England’s (BOE) hawkish comments on the rates.

The central bank said the rates may rise faster-than-expected if the Brexit process is smooth.  However, that also means the rates could stay at record low for a prolonged period of time if the two year negotiation period requires an extension.

The BOE also said that the UK may need a tighter policy than what is being priced-in by the yield curve now.

Markets believe the drop in the spending due to high inflation and the housing market concerns would force the BOE to remain on the sidelines.

However, it is not just the BOE side of the story to be blamed here. Moreover, the risk-off trading on the Wall Street and the resulting strength in the Yen also played a role in pushing the GBP/JPY cross below 5-DMA.

GBP/JPY Technical Levels

The cross currently trades around 146.50 levels. The 5-DMA and 10-DMA are still sloping upwards, which warrants caution on the part of the bears. Nevertheless, the overbought RSI suggests the bulls could remain on the sidelines.

A break above 147.01 (5-DMA) would open up upside towards 148.11 (May 10 high). A weekly close above the same would mark the continuation of the rally from the low of 135.59 (Apr 17 low) and could yield 150.00 (long-term falling trend line hurdle).

On the lower side, breach of support at 146.06 (10-DMA) would expose 145.16 (23.6% Fib R of 135.59-148.11) and 144.13 (Feb 1 high).