GBP/JPY Rally Approaching Resistance- Breakout Pending
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- GBP/JPYthreatens near-term breakout- broader outlook constructive
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Technical Outlook: The rally in GBP/JPY has been capped by a long-term trendline extending off the August 2015 highs with the pullback rebounding off the 38.2% retracement this week at 144.30. The focus is on this range heading into the close of the month but bottom line: price is approaching down-trend resistance and a breach / close above would risk a larger-scale breakout play in the pair.
If we break lower, look for a correction towards confluence support at 142.15/40 (region of interest for long-entries & broader bullish invalidation). A topside breach (favored) targets the 2016 high-day close at 147.86 backed closely by the December 2016 high at 148.43- a rally surpassing this level would be needed to validate a more meaningful breakout targeting 151.97.
Learn more about Pitchfork formations in Michael’s three-part trading series
GBP/JPY 120min Chart
Notes: A closer look at price action shows the GBP/JPY trading within the confines of a near-term descending pitchfork extending off the monthly highs with price approaching the upper median-line parallel today in New York trade. This level converges on the 61.8% retracement at 146.34 and could offer some near-term resistance on this immediate advance.
Interim support rests at 145.39 with our focus weighted to the topside while above the lower parallel / 144.70. A breach above 146.73 (December 19th reversal-day close) is needed to validate the near-term breakout targeting 147.86. Added caution is warranted heading into Japanese inflation data into the close of the week with the release likely to fuel increased volatility in Yen crosses.
- A summary of IG Client Sentiment shows traders are net-short GBP/JPY- the ratio stands at -1.35 01 (42.5% of traders are long) – weak bullish reading
- Retail has been net-short since June 30th- Price has moved 1.7% higher since
- Long positions are 0.4% lower than yesterday but 24.1% higher from last week
- Short positions are unchanged from yesterday and 17.1% lower from last week
- We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/JPY prices may continue to rise. That said, retail is more net-short than yesterday but less net-short from last week and the combination of current positioning and recent changes gives us a further mixed near-term trading bias from a sentiment standpoint.
What to look for in GBP/JPY retail positioning - Click here to learn more about sentiment!
Relevant Data Releases
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- Written by Michael Boutros, Currency Strategist with DailyFX
Follow Michael on Twitter @MBForex or contact him at email@example.com.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.