GBP/JPY retreats to 181.40 ahead of BoE decision

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• GBP/JPY cut a four-day winning streak and fell to the 181.40 area.
• All eyes on UK inflation data from and its impact on BoE’s decision on Wednesday.
• BoJ to release the June meeting minutes on Tuesday.

The GBP/JPY pair seems to be correcting overbought conditions on Monday ahead of a crucial week for the British economy. In that sense, the Consumer Price Index (CPI) from the UK in May may have an impact on Bank of England’s (BoE) Thursday decision, where a 25 basis point hike is already priced in. On the other hand, investors await Bank of Japan (BoJ)  minutes on Tuesday.

Eyes on British CPI ahead of BoE’s decision

On Wednesday, the UK National Statistics Office will release the CPI figures for May, which are expected to have slightly decelerated. The headline figure is expected to come in at 8.5% vs the previous 8.7% and show a 0.4% monthly increase in the month of May. The Core figure is expected to remain unchanged at 6.8% YoY.

Meanwhile, markets already priced in a 25 bps hike on Thursday with small odds of a higher increase of 50 bps. Regarding the next meetings, the updated macro-forecasts will play a big role in their expectations, but as for now, market participants foresee 25 bps hikes priced in for August, September, November, and December that would see the policy rate peak near 5.75%.

On the Japanese side, investors will look for clues on the stance of the BoJ with the minutes of the latest June meeting, where it was decided to maintain its ultra-loose monetary policy.

GBP/JPY Levels to watch

The technical outlook, according to the daily chart, is clearly bullish for the cross. The pair remains above its main Simple Moving Averages of 20,100 and 200 days, while indicators –  despite seeing some correction – still stand in overbought conditions. That being said, more corrections may be in the horizon, but the outlook suggests a more favourable outlook for the GBP.

On the downside, support levels line up in the closest round levels of 179.00,178.50 and 178.00. On the upside, the 182.12 cycle high struck on Friday stands as immediate resistance before uncharted territory.