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GBP/JPY Technical Analysis: Bullish Channel Runs to Resistance

GBP/JPY Technical Analysis: Bullish Channel Runs to Resistance

2016-08-31 17:45:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: Threatening to pose fresh up-trend after 500+ pip run in past two weeks.
  • We may be nearing a reversal of prior macro themes of Sterling weakness and Yen strength, and this could continue to prod price action higher should this come to fruition.
  • 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 trying to dig-out support near the Brexit-lows. And while it may have taken a little over a week that support finally showed up at a very familiar level around the 129.25 area; still well-above the ‘post-Brexit lows’ in GBP/JPY around 128.59.

Since that higher-low showed up in mid-August GBP/JPY has been on a rip-roaring run; rallying by more than 650 pips whilst staying in a relatively clean price action channel (shown below).

GBP/JPY Technical Analysis: Bullish Channel Runs to Resistance

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

Driving this run is what could potentially be a fairly brisk reversal of the macro themes driving each sub-market of GBP & JPY. While the Yen was previously strong after the Bank of Japan underwhelmed at their most recent meeting, we’re now seeing Yen weakness in anticipation of more stimulus from the BoJ. And while the British Pound was previously weak on the back of expected rate cuts in response to Brexit, now we’re beginning to see inflationary pressure brought upon by the ‘sharp re-pricing’ of the British Pound, and this is posing a potential reversal of those rate-cut bets. All of this to say, an up-trend in GBP/JPY could run for a while longer should these themes come to fruition.

At issue with near-term structure is a confluent zone of resistance that’s currently capping price gains in GBP/JPY. The up-ward sloping channel has run into a confluent zone of resistance around 135.48. This should behoove patience for those looking at top-side plays; and with that approach, traders can look to buy ‘higher-low’ support; or, wait for resistance to break at which point they can then look to buy ‘support at old resistance’ in the effort of catching that higher-low.

GBP/JPY Technical Analysis: Bullish Channel Runs to Resistance

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

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

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