December 17, 2021 14:42:59

The BoE surprised many yesterday, including us, with their 15bp rate hike. It was a coin toss before the meeting with rising inflation and a strong labour market forcing the issue at some point. But when the voting pattern goes from 2-7 in the prior meeting to an 8-1 vote for a hike, you can’t fail to be a bit surprised.

The fact that one of the main hawks thought a pause was reasonable to assess the Omicron impact also tempered hike expectations. New high daily rates of infection are now grabbing the headlines, with mounting fears of tighter restrictions. The risk is that markets start to reprice a curve that has nearly 100bps of hikes priced for 2022. This will inevitably hurt the pound, while any risk-off market moves will see a bid for safe havens like the yen.

GBP/JPY hits trendline resistance plus SMAs

This pair hit a strong area of support in early December below 149 where prices were held up on numerous occasions in July, August and September. Prices have retraced from the low of 149.04, building a base around 150 before taking out a Fib level (78.6%) of the July to October move at 150.54.

Yesterday’s spike higher took us through the next Fib level (61.8%) at 152.18 to a high of 152.63. However, both the 100-day and 200-day SMAs reside near here around 152.44 and proved strong resistance.

The bearish trendline from the October high also capped upside with a retest of this resistance seen again today around 151.72. Bears will try to make a play below 150 towards the support zone around 149. Tough resistance sits around 152.18/44.