GBP/JPY Technical Analysis: Pound Hits Lowest in 4 Months

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Talking Points:

• GBP/JPY Technical Strategy: Flat
• Pound Resumes Down Move, Drops to Lowest Level in Over 4 Months
• Opting to Pass on Short Position for Now on Risk/Reward Grounds

The British Pound resumed its push downward against the Japanese Yen, dropping to the lowest level in over four months. Prices fell short of confirming the start of a longer-term reversal of the multi-year uptrend in play since June 2012 that we discussed previously however, as least thus far.

From here, sellers aim to challenge the 38.2% Fibonacci expansion at 179.80. A daily close below this barrier opens the door for a test of the 50% level at 178.29. Alternatively, a move back above support-turned-resistance at 181.67 – the 23.6% Fib – clears the way for a challenge of the 14.6% expansion at 182.83.

The distance between near-term support and resistance is smaller than 20-day ATR, suggesting that taking a trade on either the short or the long side is unattractive from a risk/reward perspective (assuming a stop-loss activated on a daily close, as our strategy envisions). We will remain on the sidelines for now, waiting for a more compelling setup to present itself.

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