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GBP/JPY Technical Analysis: Churning From Channel to Range

GBP/JPY Technical Analysis: Churning From Channel to Range

2016-10-26 17:39:00
James Stanley, Strategist
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Talking Points:

  • GBP/JPY Technical Strategy: Longer-term price action still bearish; post-Flash Crash price action range-bound.
  • While GBP/JPY is typically a high-flying, heavy volatility pair – price action continues to remain subdued.
  • If you’re looking for trading ideas, check out our Trading Guides; they’re free and updated for Q4.

In our last article, we looked at the bullish channel that had developed in GBP/JPY after the Sterling ‘flash crash’ earlier in October. And while a channel can be an attractive formation for many technical traders, the fact that such a small range had developed in what is traditionally such a high-volatility pair was, at the very least, disconcerting.

The good news is that the channel has broken, but the other side of that good news is the fact that price action in GBP/JPY remains relatively range-bound. And while this can be just as attractive as a relatively-consistent price channel, the fact that price action in GBP/JPY remains within an approximate 200-pip range should highlight the potential for a ‘big’ break in the not-too-distant future. GBP/JPY is traditionally one of the most volatile currency pairs that traders might come in contact with; and for volatility to be so subdued, traders would likely want to take this as a signal of caution that a ‘big’ move might be around the corner.

For traders looking to trade the current range in GBP/JPY, they’d likely want to be very comfortable with where stops are placed so that there’s no second-guessing if/when the range inevitably breaks. The current range in GBP/JPY is showing from approximately 126.00 up to ~128.00, and this would likely cap profit potential for range-bound setups.

Alternatively, traders can wait for the range to break before assigning a directional bias to GBP/JPY. With price action near resistance, traders can let the zone between 128-128.750 to be taken-out by rising prices before plotting the top-side approach. After 128.75 is broken, traders can then look to implement strategies with a bullish bias with swing-traders waiting for the next ‘higher-low’ on the hourly or 4-hour charts to stage approaches.

GBP/JPY Technical Analysis: Churning From Channel to Range

Chart prepared by James Stanley

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

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