GBP/JPY looks ready to take out its December 15, 2016 high at 148.44 soon after a short period of consolidation that has followed a much longer period of sustained strength. As the chart below shows, the cross climbed strongly from mid-April until a few days ago but then eased back before consolidating. It is hard not to see that as a positive development.
Chart: GBP/JPY Daily Timeframe (Dec 2016 – May 16, 2017)
Despite dropping from the May 10 high at 148.11, GBP/JPY has dipped only modestly to 146.40 at the time of writing and has remained well above the 20-, 50- and 100-day moving averages. Moreover, the 14-day relative strength index – a momentum indicator – has already dipped below the 70 level, suggesting the cross is no longer in overbought territory.
Meanwhile, from a fundamental viewpoint, a weaker Japanese Yen fits in with the overarching current “risk on” theme in the markets, while a firmer British Pound would be no surprise given today’s higher-than-expected inflation figures and the likelihood of a UK General Election win on June 8 by the market-friendly Conservative Party.
An obvious first target is that December 2016 high at 148.44 and if that is taken out there is little resistance until the 150 level, which could be hard to break through because of the psychological importance of round numbers in the markets.
On the downside, a drop below another round number, 145, could be a warning sign, especially as the 20-day moving average is currently at precisely the same level, so that could be a good place to put a stop if you are a short-term trader and worried about a break downwards once the current consolidation period ends.
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--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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