GBP/JPY: Eying bullish break to multi-year highs ahead of key economic reports

• GBP/JPY less than 40 pips away from hitting the highest level since late 2015
• There’s little visible resistance located on the charts until 195, giving the pair plenty of room to run should it break higher
• Japanese corporate goods inflation and UK employment, wages and inflation are the main risk events to watch over the next few days. US CPI will also hit the screens later Tuesday.

GBP/JPY is on the cusp of breaking to fresh multi-year highs ahead of key inflation and employment data from the United Kingdom and Japan, making this a pair to keep on the radar over the next 48 hours.

GBP/JPY testing resistance dating back to 2015

Having bounced off uptrend support on multiple occasions since the start of February, GBPJPY is now testing horizontal resistance located at 188.80, a level that dates all the way back to late 2015. While it has been repelled on three occasions dating back to January 19, the bullish hammer candle printed to start the week suggests another test could be on the cards today.

With plenty of room to run should it break higher

A break of this level may encourage fresh long positions to be initiated targeting a push towards the highs struck in 2015 before the UK voted to leave the European Union. Looking on the longer-dated charts, there’s not a lot of visible resistance located until around 195.00, providing plenty of room to run should we get a clean break.

Japan corporate goods inflation and UK inflation and wages data on tap

Looking at the data docket over the next few days, there’s plenty of potential catalysts lurking to get GBP/JPY moving.

In Japan, corporate goods price inflation – akin to producer price inflation in other western economies – will be released later Tuesday, providing the Bank of Japan and markets another read on upstream price pressures. Later in the week, preliminary Q4 GDP information will also hit, with all eyes on trends in private sector consumption and investment given the implications for sustained inflation and wage pressures.

In the UK, traders will digest the latest experimental employment survey from the ONS, although, given the flow influence on services inflation, there’ll likely be more interest on the trends in wages growth. Previously, average earnings excluding bonuses increased 6.6% from a year earlier in November.

Two days later, an even bigger event arrives with the release of UK consumer price inflation (CPI) data for January. After an upside surprise in services and core inflation in December, the key clue from this report is whether the result was driven by seasonal quirks or the start of a longer-lasting, sticky trend?

Sandwiched in between, the US core CPI report for January will be the main known risk for traders this week with a monthly increase of 0.3% expected.

-- Written by David Scutt

Follow David on Twitter @scutty