GBP/JPY – Potential Drop to 161.30

GBP/JPY – Potential Drop to 161.30

Fundamentals

In the past 24 hours, GBP/JPY experienced the steepest losses. Due to a more than 0.75% decline in the GBP/USD and 0.9% decline in USD/JPY, GBP/JPY dropped approximately 1.75% to its lowest level since November. The pressure created by the weaker than expected manufacturing data from U.S. and U.K. was exacerbated by risk aversion. When the markets open in Asia and investors in that part of the world see that U.S. stocks fell more than 2%, we expect further weakness in GBP/JPY. Although there were pockets of strength in both the U.S. and U.K. manufacturing reports, GBP/JPY will have a very difficult time recovering without a turnaround in risk appetite. Unfortunately there’s no major U.K. or U.S. economic reports scheduled for release tomorrow that could help. As a result, we expect further losses in GBP/JPY and if this week’s data releases continue to miss their mark, the currency pair could drop below 161 and head towards 160.

Technicals

Taking a look at the weekly chart of GBP/JPY, there is some minor support at the November low of 163.69 but the more significant support level is at 161.30, the 23.6% Fibonacci retracement of the September 2011 to December 2013 rally. As long as GBP/JPY holds below 166, a move towards this level is likely. If it breaks above this former support turned resistance level, we could see a stronger recovery to 168.

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