GBP/JPY collapsed on Friday after the 1st estimate of the UK GDP showed that the economy slowed much more than anticipated in Q1. On a qoq basis, growth slowed to +0.1% from +0.4%, missing estimates of a much more moderate slowdown, to +0.3%. This dragged the yoy rate down to +1.2% from +1.4%. Following last week’s dovish comments by Governor Carney and the unexpected slowdown in inflation, this release winds further down expectations with regards to a May rate increase by the BoE.
From a technical standpoint, the tumble brought the rate below the short-term uptrend line drawn from the low of the 2nd of March, to test the key support barrier of 150.70. That said, although the rate is now trading below that trend line, a decisive dip below 150.70 is needed to confirm a forthcoming lower low on the 4-hour chart and complete a short-term trend reversal. Such a break is possible to initially pave the way for the psychological figure of 150.00. Another fall below that round number could see scope for more downside extensions, perhaps towards the 149.00 territory.
Shifting attention to our short-term oscillators, we see that the RSI fell below its 50 line and now looks to be heading towards 30. The MACD, already below its trigger line, has just obtained a negative sign. These indicators detect negative momentum and suggest that the pair may be poised to continue trading south for a while more.
On the upside, even if we see a recovery from current levels, we would still see a decent likelihood for the bears to jump in again, perhaps from near the crossroads of the aforementioned trend line and the 151.60 zone. We prefer to wait for a move above the downside resistance line drawn from the peak of the 16th of April before we start examining whether the bulls have taken the driver’s seat. Such a move could initially aim for the 152.75 hurdle, the break of which may open the path towards our next resistance of 153.60.
