GBP/JPY Price Forecast: Bright UK data helps the Pound to extend its recovery

In Wednesday's London trading session, the British Pound (GBP) demonstrated resilience against the Japanese Yen (JPY), bolstered by a revised Gross Domestic Product (GDP) report and an unexpected improvement in the UK Current Account. By market close, GBP/JPY had reclaimed nearly all the losses incurred during the Asian trading session, settling at 208.00 after previously hitting a year-to-date low of 206.89.

The UK economy expanded at a 0.5% annualized rate in the second quarter, surpassing the earlier estimate of 0.4%, and the year-on-year growth was revised upward to 1.4% from the preliminary 1.2%. Meanwhile, the UK's current account deficit narrowed significantly to GBP 19.932 billion in Q2, down from the downwardly revised GBP 21.12 billion in Q1, contrasting market forecasts of a widening gap of GBP 25.6 billion.

Conversely, Japan's economic indicators failed to bolster the Yen, with Retail Trade contracting 1.2% in August and Industrial Production declining 4.8% in August, below the expected 1.7% increase following a July rise of 0.5%. As a result, GBP/JPY has rebounded to 207.90, but the short-term outlook remains bearish, with price action staying beneath a prior support trendline that now acts as resistance.

Technical indicators on the 4-hour chart are still negative, featuring a Relative Strength Index (14) below 40 and a slightly negative Moving Average Convergence Divergence (MACD), indicating that the recovery is still tentative. To challenge the current resistance level of 208.30, bulls must first break through, potentially exposing the September 27 and 28 high of 209.00.

Higher still, the September 22 and 24 highs around 210.15 appear unattainable in the near term. On the downside, GBP faces crucial support at 207.00, with the 127.2% Fibonacci retracement of September's rally at the 206.00 level representing a potential target.