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GBP/JPY has been generally weak for the better part of the year, with price not decisively trending down but the chart leaning lower. Since coming off a rejection on Friday from trend-line resistance, price action on the 4-hr time-frame has been weakening.
While not a textbook descending wedge given it doesn’t have a perfectly flat bottom, the general direction of the wedge is sloping downward as pronounced lower-highs are being carved out. A break below the lower trend-line of the pattern should have GBP/JPY rolling downhill towards support in the lower 14300s or worse.
With stops set just above the top-side line of the pattern, risk/reward is favorable given the distance to the target and potential for momentum. The initial target consists of the May low and lower trend-line extending down from a swing low created in October, and another from November (in the 14200s).
Given the trend is down and so are the targeted trend-lines, risk is higher they will break than if the trend-lines were of the rising variety. With that said, giving at least part of a position breathing room to break support and accelerate could end up being a good move for extending the trade (possibly down to 140/139). If buyers step up at support in earnest, though, then taking profits will be a prudent move.
***Updates will be provided on this idea and others in the trading/technical outlook webinars held on Wednesday and Friday.
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GBP/JPY Daily Chart (Leaning lower, turned down from trend-line)
GBP/JPY 4-hr Chart (Descending wedge)
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---Written by Paul Robinson, Market Analyst
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