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GBP/JPY Technical Analysis: Risk Aversion Quells the Up-Trend

GBP/JPY Technical Analysis: Risk Aversion Quells the Up-Trend

2015-09-23 17:39:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: Flat
  • Risk aversion has hit GBP/JPY in a big way, seeing the pair peel off over 400 pips thus far in the week.
  • Heavy volatility combined with a lack of clear direction via price action makes the sidelines attractive, for now.

After finding support at the end of last week off of a prior resistance level, the budding up-trend in the GBP/JPY was beginning to show promise for additional top-side movement. Monday gave us more of the same; as buyers continually came into defend this line-in-the-sand at 186.27, which is the 38.2% Fibonacci retracement of the most recent major move (taking the June high to the September low).

But as risk aversion swept through markets on Tuesday, GBP/JPY broke through multiple levels of support to provide a congested setup with no clear direction via price action. While the most recent trend was the establishment of a new low in early September, a new short-term high set in the wake of last week’s FOMC announcement obscures near-term direction in the pair. Like many other assets across markets, GBP/JPY is showing a tendency to correlate with risk trends; so when risk aversion hits and stocks sell-off, we’ve seen GBP/JPY move lower and the exact opposite is true when we see a ‘risk on’ tone in the market, as both stocks and GBP/JPY have appreciated.

Support at 184 was a significant level, as this was a confluent Fibonacci level with the 23.6% retracement of the most recent major move, as well as 23.6% of the ‘big picture’ move taking the 2007 high at 251 to the 2011 low at 116.82. Traders looking to initiate short positions can wait for a test of this prior support level as new resistance before triggering to the short side in the effort of finding a risk-efficient way to enter. Next support levels, and areas that could be attractive for profit taking on short positions are at 182.50 (major psychological level) and 180.343 (September low).

Alternatively, the longer-term upward-sloping trend-line is still in effect on the pair; and an intersection with this trend-line could coincide nicely off of the 180 handle over the next week.

GBP/JPY with a setup of congestion

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