GBP/JPY Price Analysis: YTD Highs Reached on Risk-On Sentiment, Followed by Retracement Due to Formation of Rising Wedge

The GBP/JPY currency pair has been on a rollercoaster ride in 2021, reaching year-to-date highs in early June before experiencing a sharp retracement. This price action can be attributed to the prevailing risk-on sentiment in the markets, as well as the formation of a rising wedge pattern on the charts.

The GBP/JPY pair is a popular forex trading instrument that represents the exchange rate between the British pound and the Japanese yen. It is often used as a barometer of risk appetite in the markets, as both currencies are considered to be sensitive to global economic and political developments.

At the start of 2021, the GBP/JPY pair was trading around the 140.00 level, as investors were cautiously optimistic about the global economic recovery from the COVID-19 pandemic. However, as the year progressed and vaccination rates increased, risk appetite picked up, and the pair began to climb higher.

By early June, the GBP/JPY pair had reached a year-to-date high of 156.00, as investors piled into riskier assets such as stocks and commodities. This was also supported by the Bank of England’s hawkish stance on monetary policy, which hinted at a potential interest rate hike in the near future.

However, this bullish momentum was short-lived, as the GBP/JPY pair soon began to experience a sharp retracement. This was due to the formation of a rising wedge pattern on the charts, which is a bearish reversal pattern that indicates a potential trend reversal.

A rising wedge pattern is formed when the price of an asset makes higher highs and higher lows, but within a narrowing range. This indicates that buyers are becoming less enthusiastic about pushing prices higher, and that sellers may soon take control.

In the case of the GBP/JPY pair, the rising wedge pattern was confirmed when prices broke below the lower trendline of the wedge in mid-June. This triggered a wave of selling pressure, which saw the pair drop back down to the 150.00 level.

Since then, the GBP/JPY pair has been trading in a range between 150.00 and 153.00, as investors await further developments in the global economy and central bank policy. The Bank of England’s recent decision to maintain its current monetary policy stance has provided some support for the pound, but ongoing concerns about the Delta variant of COVID-19 and geopolitical tensions could weigh on risk appetite in the near term.

In conclusion, the GBP/JPY pair has experienced a volatile year so far, driven by risk-on sentiment and the formation of a rising wedge pattern on the charts. While the pair has retraced from its year-to-date highs, it remains in a range-bound trading pattern for now. Traders should keep an eye on key support and resistance levels, as well as any developments in global economic and political events that could impact risk appetite.

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• Source: Plato Data Intelligence.