The Sterling Chase
The GBP/JPY is a pair historically known for its large trends and dynamic moves. Since the beginning of the 2011 trading year the pair has tested both lows and highs failing to trend in either direction! Currently at the present price level, we are revisiting prices that were established as far back as March 2010 over a year ago.
Last week the BOE, (Bank of England) opted to keep key rates at a record low 0.50%. Economic uncertainty remains the norm as the BOE continues to keep cheap lending available to bolster business. This fact, coupled with the Japans continued repatriation of Yen to assist in paying for construction costs (due to their earthquake), leads me to keep an eye on GBP/JPY daily support near 128.40.
Taking price in to a 4hr chart we can see our downward trend line in more detail. Price is currently trading in a consolidating Chunnel with support holding at 131.60. A breakout below would confirm our bearish outlook on the pair. Further consolidation and a break higher would implicate a test of our longer term resistance line near the 135.00 handle. If this occurs, sellers can look to resume trading if price holds this point.
My preference is to look for selling opportunities as price breaks our support line. The MACD Indicator is giving us a bearish bias trading under our zero line. I want to wait for the MACD line to cross our signal line prior to entry on the pair. Our initial stops should be set above resistance above 1.3725 (old support). Our target can be set at support of our daily chart near 1.2900 or better for a clear 1:2 Risk/Reward level.
Alternative scenarios include price breaking our wedge higher and heading toward long term resistance. Sellers may enter look for new trading opportunities if prices reach this level.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.