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GBP/JPY Technical Analysis: 600-pip Slalom into Support

GBP/JPY Technical Analysis: 600-pip Slalom into Support

2016-06-01 19:29:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: prior up-trend in question as multiple swing-lows have been violated past two days.
  • The macro-front of both GBP and JPY may have seen reversals of fortune over the past 48 hours.
  • If you’re looking for additional trade ideas, check out our Trading Guideand if you’re looking for shorter-term ideas, check out our SSI indicator.

In our last article, we looked at GBP/JPY as a major psychological level at 162.50 showed up as resistance for the third time in less than two months. And while we did see a quick break of that resistance yesterday, price action remained confined below the March swing high of 164.08.

But the past two days have brought on some signifcantly different macro themes. The British Pound was previously rallying on the back of the reduction in Brexit-fears. A couple of polls released yesterday actually showed a slight majority to the ‘leave’ camp, so those fears of Brexit have been re-fired as GBP has seen a tumultous sell-off against most major currencies. And then in the overnight session, Shinzo Abe announced that the planned sales tax hike would be kicked back by two and a half years as Japan fears a worsening global economic backdrop. This has helped to bring back that risk-aversion-like move of Yen strength, thereby reversing much of the weakness that the Yen had picked up through the month of May.

The current support zone of interest is between 157-157.50, and this has provided, at least for now, a pause in this violent move lower over the past two days. There are two Fibonacci levels of interest in this zone, combined with the psychological level at 157.50. At 157.21 we have the 27.2% extension of the prior major move, taking the November 2015 high to the February 2016 low. And at 157.15, we have the 61.8% Fibonacci retracement of the most recent major move in the pair, taking the February 16th swing high in the pair to the April swing low.

Traders can use this zone of support to line-up directional stances moving forward. Should this support hold, reversal setups could become attractive. But if this support gives way to deeper falling prices, the prospect of continued risk aversion in the Yen could bring on a re-emergence of the prior down-trend that saw GBP/JPY give up more than 4,000 pips in less than 10 months. For traders looking to get short GBP/JPY, this support zone could become the next area of resistance should that aggressively bearish price action remain.

GBP/JPY Technical Analysis: 600-pip Slalom into Support

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

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

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