GBPJPY has been trending lower on its 1-hour time frame, moving inside a descending channel.

Price is testing support at the 135.00 major psychological level, which could keep losses in check for now. If so, the pair could climb back up to the channel resistance at 137.00, which lines up with the 200 SMA dynamic inflection point. 

The 100 SMA is below the 200 SMA so the path of least resistance is to the downside. In addition, the gap between the moving averages is widening so bearish pressure is getting stronger. In that case, price could even break below the channel support and go for a sharper drop. 

However, stochastic is heading north for now so price could follow suit while buyers take over. Stronger bullish momentum could lead to an upside break from the top of the channel and a reversal from the downtrend. 

The UK manufacturing PMI is up for release today and a 49.1 reading is eyed, indicating industry contraction. Also due today is Japan’s final manufacturing PMI but no revision from the earlier 49.0 reading is eyed.  

Last week, the BOJ decided to increase their ETF buying program, but this seemed to be a disappointment to market participants who were counting on a more aggressive stimulus expansion. Later on in the week, it will be the BOE’s turn to make their policy decision but no actual rate changes might be announced. 

If so, the pound could make a strong rally against the Japanese yen, especially if risk appetite picks up later on in the week. UK construction and services PMI readings are also due, but their initial estimates have already been released so market watchers already know what to expect. 

By Kate Curtis from Trader’s Way