GBP/JPY Technical Analysis: The Eye of the Storm

2016-06-29 19:21:00

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Talking Points:

GBP/JPY Technical Strategy: This pair dropped by 2,690 pips around the Brexit referendum.
GBP/JPY is likely going to remain volatile in the near-term. Be very careful if doing anything with this pair.
If you’re looking for additional trade ideas, check out our Trading Guide and if you’re looking for shorter-term ideas, check out our SSI indicator.

In our last article, we looked at the rollercoaster that has been GBP/JPY price action over the past month. After dropping by more than 1,800 pips from the last day of May through the first two weeks of June, the pair spent the week ahead of the referendum retracing 1,500+ pips higher to the psychological level at 160. And then Brexit happened. Markets were pricing-in a remain vote, and the shock value of the unexpected sent markets on a pronounced ‘flight-to-quality,’ and GBP/JPY dropped by more than 2,690 pips over a six-hour period. This is a profound move in a really short period of time, even in the usually volatile pairing of GBP/JPY.

Moving forward, traders are faced with the conundrum of whether or not to chase the move while we’re so near a 3.5 year-low in the pair. Given the extreme volatility seen in GBP-pairs of recent, traders would likely want to wait for a more attractive retracement before pushing the short-side of the move from here.

There is an interesting potential zone of resistance in the region from 139.55-140.00. At 139.55 we have the 23.6% Fibonacci retracement of the ‘Brexit move’ in GBP/JPY, and a few pips higher at 139.59 we have the Friday close in the pair. Of note, there is still an unfilled weekend gap in GBP/JPY, as that Friday close saw price action gap lower to open at 136.05 on Sunday. Traders looking to push the short-side of the pair would likely want to wait until, at the very least that gap had been closed by price action before looking to trigger short. The level of 140 is also interesting as this is ‘major psychological level,’ and as we saw from the 160 resistance inflection just ahead of the Brexit results, this can offer an attractive mechanism for finding support or resistance levels.

Should price action break above 140 in GBP/JPY, traders are likely going to want to exercise a bit more caution before looking to sell fresh resistance. Given the veracity of the initiating move, GBP/JPY could see rampant volatility before moving back into a trending-direction should 140 be taken out.