GBP/JPY Technical Analysis: Higher-Low Negates Short Setup

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Talking Points:

• GBP/JPY Technical Strategy: Pending short canceled, currently flat.
• GBP/JPY continues to congest ahead of FOMC after the panic-driven losses at the end of August.
• Higher-low support highlights potential long entries should the up-trend continue to develop.

In last Friday’s piece, we looked at a potential short setup based on resistance at the 126.74 area, as this had provided two consecutive days of resistance, with the second day seeing indecision with the print of a spinning top candlestick formation. But price action to open the week was lackluster, offering no attractive risk-reward ratios to the downside; and strength in the pair after this morning’s UK wage growth print has helped to build in a higher low with support in the 184.25 zone, thereby negating the pending short-setup entry. At this point, GBP/JPY would best be defined as ‘congested,’ as the short-term chart is bullish, the intermediate-term setup is bearish, and the long-term chart looks bullish.

From here, the pair could offer setups in either direction after the trend becomes clearer, and this will likely take place after the fireworks around FOMC on Thursday. Continued strength above 187.25 and then 187.50 would offer alignment of the long, intermediate and short-term trends; and this could be accommodative for long positions up to 188.10 (50% Fibonacci support of the most recent major move), and then 189.90 (61.8% of the same move, and just shy of the 190 psychological resistance level).

Alternatively, continued resistance below the 187.25-187.50 zone could make reversal plays attractive to the short side. If this resistance is to hold, targets could be cast towards 186.27 (price action resistance plus 38.2% of the most recent major move), 185 (psychological whole number support) and 184 (confluent Fibonacci support plus prior price action support).

Written by James Stanley of DailyFX; you can join his distribution list with this link, and you can converse with him over Twitter @JStanleyFX.