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GBP/JPY Technical Analysis: Testing Channel, Fibonacci Support

GBP/JPY Technical Analysis: Testing Channel, Fibonacci Support

2016-09-07 16:27:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: Top-side run from mid-August saw 975-pips of up-side; now retracing part of that move.
  • 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 a relatively young bullish trend-channel forming in GBP/JPY. As we discussed, both GBP and JPY had the potential for strong reversals of prior macro themes that could, potentially, continue pushing the pair higher as bearish bets on GBP covered while fresh Yen-selling took place in anticipation of another move from the Bank of Japan. At the time of writing for our last article, GBP/JPY had just run into a confluent zone of resistance between 135.48-135.72; and while this offered a brief pause on the bullish move higher, demand eventually drove price action to fresh highs as price action continued to trade within the bullish channel (shown below).

That move continued higher to set a near-term top at 138.82, and since then the pair has retraced a little more than 300 pips; right back down to that confluent zone of potential resistance we were looking at last week that could become near-term support for bullish approaches moving forward. On the chart below, we’re looking at this zone of potential support with three additional support levels plotted below near-term price action.

GBP/JPY Technical Analysis: Testing Channel, Fibonacci Support

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

Traders looking to get long on GBP/JPY can base risk levels on tolerance and aggressiveness, with each of the above support levels as potential areas for stop placement. For those wanting to give the trade maximum amount of room ‘to work,’ the Brexit swing low at 133.20 is especially attractive, and while 240 pips of risk on a trend-entry may not be all that desirable, the 300+ pips up to the prior swing-high could allow for a better than 1-to-1 risk-reward ratio.

For those wanting to treat the position a bit more aggressively, the major psychological level at 135 could be an attractive area to look to wedge stops below.

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

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