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GBP/JPY Technical Strategy: Longer-term bearish, price action remaining near longer-term support in the 130.00-area.
GBP/JPY is testing a support level that’s previously led to big top-side moves in the pair in July and August.
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In our last article, we looked at GBP/JPY while it tenuously traded around support at the 135-handle. As we noted, should support hold above 135, this could’ve opened the door for continued bullishness on the prospect of a continuation of higher-highs and lows; and with Central Bank meetings from both the U.K. and Japan on the docket in the coming weeks, the potential for motivation of this theme certainly existed.
But that didn’t happen. The Bank of England remained dovish, talking up the prospect of even more rate cuts down the road; and the Bank of Japan did not trigger the ‘bazooka’ of stimulus that could’ve brought upon Yen-weakness. The combination of what happened at these two Central Bank meetings brought GBP/JPY right back down to the well-tested zone of support in the 128.50-129.50-region. When this support zone came into play in July just after the Brexit referendum, price action bounced to the tune of 1,300 pips in the following week: When a subsequent test of this support happened in mid-August, price action bounced by almost 970 pips. Monday and Tuesday of this week saw additional tests of this support zone, and a trend-line drawn to connect the July-low to the August-low intersects directly with this two-day batch of support.
This can open the door for top-side plays in the pair, and traders can investigate stops below either the July swing low at 128.50 or the August swing-low at 129.00. On the top-side of the pair, traders would likely want to take notice of the potential resistance at 133.20, which was the Brexit swing-low, followed by the thick batch of potential resistance between 135.00-135.72.
Chart prepared by James Stanley
--- Written by James Stanley, Analyst for DailyFX.com
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