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GBP/JPY Rally Approaching Resistance- Breakout Pending

GBP/JPY Rally Approaching Resistance- Breakout Pending

Michael Boutros, Strategist

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Talking Points

GBP/JPY Daily Chart

GBP/JPY Daily Chart

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

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.

GBP/JPY Rally Approaching Resistance- Breakout PendingGBP/JPY Rally Approaching Resistance- Breakout PendingGBP/JPY IG Client Sentiment
  • A summary of IG Client Sentimentshows 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!

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Relevant Data Releases

GBP/JPY Economic Docket

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Other Setups in Play:

- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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