London Streets. Image source: City.and.Color, flickr.com
The positive labour market data from today did not help the GBPJPY extend its gains further north. Instead, the price of the pair appears to have reached a peak ahead of a likely upcoming correction. Get a better sense of the broader market sentiment from our last comprehensive analysis of the GBPJPY.
British headline unemployment was recorded at 4.5 per cent in September, meeting the preliminary forecasts. The moderate decline by 0.1 per cent from a month prior underscores a crucial stage in the stabilisation of the economy as unemployment sunk to its lowest level in a year. Nevertheless, the gradually rising pressure on the pound was not reversed by the positive news.
GBPJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the 4H chart above, the underlying momentum appears to be peaking, as illustrated by the MACD indicator. The histogram has already started to decline, which could be an early indication of an upcoming bearish reversal.
The first target for such a correction is represented by the 23.6 per cent Fibonacci retracement level at 153.218, which is about to converge with the 20-day MA (in red). If the price action manages to break down below it, the next target would be the 38.2 per cent Fibonacci at 152.402.
The 50-day MA (in green), another floating support, is headed towards the latter, making it an even more prominent threshold as well. The deepest target for such a correction can be found at the 61.8 per cent Fibonacci at 151.084, which coincides with the 100-day MA (in blue) at present.
A milestone in the recovery process
The UK labour market is experiencing a very linear recovery, as can be seen on the graph below. With one minor exception, headline unemployment has been steadily contracting since the beginning of the year.
UK MoM Unemployment Rate. Image source: TradingEconomics.com
Meanwhile, the number of people claiming benefits declined by 51.1 thousand, below market forecasts of 60.5 thousand. Even though the labour market continues to recuperate, there is still spare capacity for an even more sizable improvement.
Part of the reason is the still bumpy and uneven progress that is being made across different sectors.
UK MoM Claimant Count. Image source: TradingEconomics.com
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