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GBP/JPY Technical Analysis: News Can Help, News Can Hurt

GBP/JPY Technical Analysis: News Can Help, News Can Hurt

2016-03-07 19:57:00
James Stanley, Strategist

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Talking Points:

In our last article, we looked at taking a short position in GBP/JPY using the psychological level at 160 as a basis for resistance. That play didn’t work, and a stop was soundly eaten. But that doesn’t mean that the short-side theme in the pair is yet dead. The initial drives that brought the pair significantly lower since that mid-November top may still exist, and with the Bank of England scheduled to speak in front of British Parliament on the hot-topic of ‘Brexit’ tomorrow, we may see that motivation for a continued down-trend come back into markets.

I want to be clear here: I’m not predicting what’s going to happen at this testimony tomorrow. This is a technical article and this is a technical setup. As a technical trader, news can help us or it can hurt us. But just as we saw with the open of the New Year, market sentiment will often denominate the manner in which that news is digested. In bullish markets, bad news gets de-emphasized and good news becomes the primary driver. In bearish markets, good news goes by the way-side as bad news becomes the object of focus.

On a technical basis, the setup for continued short positions has begun to show: This morning brought in a lower-high just below the psychological level at 162.50, and a recent break to a new short-term low may be opening the door for a short-side swing position in the direction of the previous trend ahead of a major news announcement.

This gives the hint of a potential return of the down-trend with the opportunity for an asymmetric risk-reward ratio (risking less than you're looking to make if the setup works out) ahead of a major news announcement.

Traders can look at stops above this psychological level of resistance at 162.50, with targets set to previous support at 160.38. Should tomorrow’s news provoke a new down-trend or further down-side moves, traders can incorporate additional profit targets in the effort of scaling out of the position to get the average exit a bit higher. Traders could plot targets at previous support values of 159.05, 157.38 and again at 156.35.

GBP/JPY Technical Analysis: News Can Help, News Can Hurt

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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