GBP/JPY Technical Analysis: Turning Trends Like a Rolling Stone

2016-11-30 18:31:00 James Stanley

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Talking Points:

GBP/JPY Technical Strategy: Bullish with legitimate continuation-potential.
GBP/JPY has seen a coalescence of fundamental themes, as GBP strength is coming-in with JPY weakness, leading to what’s been aggressive top-side move on the pair over the past three weeks.
Prior analyst pick limited out at 141.50 final target.
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In our last article, we looked at the recently re-fired up-trend in GBP/JPY as the pair was bullish and bursting to fresh 4-month highs. A key level of this move was at 138.83, as this was the September swing-high in the pair and had helped to show short-term resistance as GBP/JPY was driving-higher. As we wrote in our last article, this level could be an opportune area to look for support to develop in the effort of the bullish continuation entry; and after GBP/JPY set another fresh high at 141.75 in the days following, a retracement to start this week brought price action right down to that support level before another leg of the up-trend got under way. We wrote about this in yesterday’s Market Talk article entitled, JPY: How to Work With the Trend That Barely Bends.

Chart prepared by James Stanley

To put matters in scope: It was only 7 weeks ago that we were calling GBP/JPY the ‘race to the bottom’ as weakness was showing in both currencies. The Bank of England wanted a weaker-GBP to help offset Brexit risks, and the Bank of Japan had just changed their stimulus policy to target yields rather than rigid amounts of bond purchases. Both of these had the potential to drive longer-term weakness into each currency; but after the BoE began to take notice of the rising inflationary forces, the prospect of even-more dovishness out of the U.K. began to look less-likely. Those prior down-trends in GBP have reversed into strength; and while the U.S. Dollar puts in a near-historic move throughout much of November, GBP has held its own : GBP/USD has developed a fairly consistent range.

But when this GBP-strength has been coupled with JPY-weakness, we’ve had some real dynamic price action to work with. GBP/JPY is up over 12.8% since the lows of election night, just three weeks ago. The pair is continuing to run-higher, working on another fresh 4-month high as of this writing, with the ‘post-Brexit’ swing-high at 143.23 nearing.

As we wrote in our last article, approach here should be one of prudence. Yes, this has been a fantastic move, but after such a volatile pair runs so hot, so quickly, traders will want to be cautious of chasing and instead, wait for some element of support to show so that risk can be properly managed.

For re-entries, levels at 140.95, 140.00 and again at 138.83 could be interesting. Should prices break below 137.50, the bullish approach would likely come into question, at least for the time being. On the resistance side of the coin, the post-Brexit swing-high is at 143.32, and at 145.00 we have a major psychological level. Each of these can be ideal places to begin plotting profit targets and/or looking for retracement of the bullish move in the effort of catching a support entry in the periods following. After those resistance levels, areas at 147 and 148.50 become interesting for next-resistance.