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GBP/JPY Technical Analysis: The New Trend is Settling-In

GBP/JPY Technical Analysis: The New Trend is Settling-In

2016-11-16 18:06:00
James Stanley, Currency Strategist
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GBP/JPY Technical Analysis: The New Trend is Settling-In

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Talking Points:

  • GBP/JPY Technical Strategy: Near-term trend with bullish- continuation prospects.
  • GBP/JPY has moved up by more than 1,000 pips since last Tuesday’s lows, breaking numerous resistance levels on the way-higher.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at the premise of a new trend being in play in GBP/JPY after an 800+ pip, 3-day romp of price action driving prices higher. But as we advised, traders would likely want to wait for support as that trend had moved aggressively with very little retracement and very few swings, meaning there were a dearth of locations to look for stop placement.

The exciting part here is the fact that this trend just didn’t come out of the blue; both currencies were previously driving lower by either extremely dovish Central Bank policy or for the expectations for even more loose and dovish monetary policy. We discussed this theme last month in pertinence to GBP/JPY in the article entitled, Race to the Bottom.

But with Sterling now showing signs of life after the Bank of England pivoted on inflation expectations earlier in the month, and as the Yen continues to weaken, the prospect of a new trend-higher continues to get more attractive in GBP/JPY as there is a legitimate chance of seeing some element of monetary divergence in the coming months.

For traders looking to add long exposure in GBP/JPY, they would likely want to base approach on how aggressively they wanted to treat the move. Given the veracity of the incline, traders may need to sit through some drawdown before the trend-higher is ready to move-up should the entry be rushed. Prices are currently moving down to a prior level of short-term resistance around 135.73, and a bit lower we have a Fibonacci retracement level at 135.49. But perhaps more operable for this near-term support would be the 135 psychological level in the pair. Given that this is GBP/JPY, support has a tendency to be ‘less clean,’ so traders can be well-served by becoming pickier or more prudent in such a situation.

Should that support not hold, the level at 133.20 is interesting, as this was the ‘Brexit swing low’ in GBP/JPY; but perhaps more importantly has shown numerous subsequent tests as both support and resistance. And if the psychological level at 130 becomes broken, traders will likely want to question the prospect of continued bullishness in GBP/JPY.

GBP/JPY Technical Analysis: The New Trend is Settling-In

Chart prepared by James Stanley

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

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