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Failed Head and Shoulders Pattern Signals Renewed Upside Potential
Economic
Summary:
The UK's economic data released on Friday exhibited a lackluster performance, prompting a corrective rebound in GBPJPY. The UK's GDP contracted by 0.1% MoM in May, undershooting the market's expected growth of 0.1% MoM. Meanwhile, escalating trade tensions have heightened the uncertainty surrounding Japan's economic outlook, exerting downward pressure on the Japanese yen.
Buy
TradingGBPJPY
EXP
198.776
Entry Price
204.140
TP
196.000
SL
198.848 +0.560 +0.28%
0
Point
Flat
196.000
SL
CLOSING
198.776
Entry Price
204.140
TP
Fundamentals
GBPJPY steadied after a modest decline on Friday, oscillating in the positive territory near the 199.20 level during the Asian session. Data revealed that the UK's GDP declined by 0.1% MoM in May, following a 0.3% contraction in April, significantly underperforming the market's expectation of a 0.1% expansion. This underscores the fragile recovery of the UK economy.
In the services sector, output rose by 0.4% MoM in May, down from 0.6% in April. Industrial production and manufacturing output both fell more sharply, declining by 0.9% and 1.0% respectively in May, both below market estimates. These weak data have raised concerns about the UK's economic outlook and weighed on the pound.
Additionally, the Bank of England's Financial Policy Committee (FPC) warned in its mid-year report on Wednesday that financial markets are facing multiple systemic risks. The FPC noted that "the prices of risky assets could see a significant correction, asset allocation could change abruptly, and the risk of a breakdown in historical correlations remains significant." The report emphasized that geopolitical tensions, the fragmentation of the global trading and financial system, and sovereign debt pressures are the main challenges to the UK's financial stability at present.
Nevertheless, the yen's weakness has provided some support to GBPJPY. As trade tensions intensify, Japan's economy faces increased downside risks. This is especially true in the context of the US-Japan trade negotiations, where a deadlock over market access for Japanese rice has led to the possibility of a 25% punitive tariff on Japanese exports to the US.
On the other hand, Japan's Producer Price Index (PPI) for May indicated that inflation may be receding, which could further diminish the likelihood of the Bank of Japan raising interest rates this year. Overall, the yen's outlook remains under pressure, providing some cushion for the pound against the yen.
Technical Analysis
From a technical perspective, GBPJPY's intraday trend appears neutral, consolidating below the 199.80 level. Earlier today, the daily GBPJPY bulls broke through the right shoulder on the one-hour chart, leading to the failure of the head and shoulders pattern. This suggests that the bulls may resume their upward push. As long as the key support level at 196.00 holds, the market anticipates that the exchange rate could rebound further in the future.
Should the exchange rate break above the resistance level at 199.80, it could potentially restart the upward trend within the range of 184.35 to 199.79, aiming for a final target of 204.14.
Overall, given the interplay of multiple fundamental and technical factors, the short-term trajectory of GBPJPY remains closely monitored by investors. Future policy developments and the evolution of trade tensions are also expected to have a profound impact on the foreign exchange market.
Trading Recommendations
Trading Direction: Buy
Entry Price: 198.50
Target Price: 204.14
Stop Loss: 196.00
Deadline: July 26, 2025, 23:55:00
Support: 198.49/198.22/197.92
Resistance: 199.47/199.89/200.53
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