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GBP/JPY Technical Analysis: Five Days of Res at the 61.8, but Not Quite Bearish

GBP/JPY Technical Analysis: Five Days of Res at the 61.8, but Not Quite Bearish

2016-07-20 18:14:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: Intermediate-term price action appearing to make an attempt at a bullish move.
  • GBP/JPY has continued to claw-back Brexit losses, and is now seeing higher-lows come-in with horizontal resistance (ascending wedge pattern).
  • 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 warned that the recent top-side move in GBP/JPY might have room to run. This was based upon the two-pronged impact of a) no rate cut out of the BOE and b) the prospect of additional stimulus coming from Japan. So despite the veracity of the previous down-trend, such significant changes in the macroeconomic backdrop in GBP/JPY made for the prospect of a continuation of the reversal until, eventually, we may see a new trend develop.

Since that last article, we’ve seen GBP/JPY continuing to carve-out higher-lows, further confirming this thesis. But gains have continued to be tempered by near-term resistance at 140.63, which is the 61.8% of the ‘Brexit-move’ in GBP/JPY. This horizontal level of resistance to go along with inclining lows highlights an ascending wedge formation on the daily chart (shown below).

GBP/JPY Technical Analysis: Five Days of Res at the 61.8, but Not Quite Bearish

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

The type of congestion seen in a wedge pattern often preludes a big move. This type of digestion will often take place around trend-changes, as sellers that are late to the party get offset by buyers looking to jump on the new trend’s direction. Given the amount of resistance seen at this 61.8% level, the point of control for sellers becomes obvious; but it’s the higher-lows that make the setup interesting as buyers are getting increasingly more aggressive and incrementally less-patient as they try to get long in GBP/JPY.

Given that we have a fairly well-heeled form of near-term resistance, traders can wait for the wedge to actually break before looking to get long. To do this, traders would want to wait for price action to find near-term support on this current level of resistance. This would necessitate a top-side burst higher before the long entry could be taken off of support, but if this move in GBP/JPY truly becomes a new trend, there are numerous top-side levels to look to for profit targets; and traders would likely be able to get more amenable risk levels by placing stops underneath the next iteration of ‘higher-low’ support.

GBP/JPY Technical Analysis: Five Days of Res at the 61.8, but Not Quite Bearish

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

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

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