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GBP/JPY Technical Analysis: Digging-In to the Trend

GBP/JPY Technical Analysis: Digging-In to the Trend

James Stanley, Senior Strategist

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Talking Points:

  • GBP/JPY Technical Strategy: Bullish; near-term price action retracing after setting fresh 2-month high.
  • GBP/JPY is finally retracing after the nearly 2,000-pip run from the lows of election night.
  • If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at the continuation of the recent bullish move in GBP/JPY. After spiking down to a low of 126.70 on the night of the U.S. Presidential Election, GBP/JPY spent the next three-and-a-half weeks rallying-higher, totaling a run of almost 2,000 pips (1,933.6 to be exact).

As we had looked at previously, there exists the legitimate prospect of both fundamental and technical themes in GBP/JPY aligning in the same direction. The British Pound has been rather strong since the Bank of England’s Super Thursday earlier in November; and the Japanese Yen has been extremely-weak as the prospect of even more bond purchases has helped to keep the Yen moving-lower. And from a technical perspective, the extremely-bullish nature of price action since the Presidential Election meshes-up very well with this fundamental-drive; thereby creating the exciting scenario in which traders could legitimately imagine a bullish trend driving GBP/JPY higher for weeks or perhaps even months ahead.

There is but one problem with such aligned-trends: There’s often very little room to jump-in. If a market is extremely bullish and the fundamental backdrop is pointing in that direction as well, we’ll often see very little ‘giveback’ in the trend. Retracements will often run a bit more-shallow, price action will usually spend less time at support and traders, frankly, won’t usually wait around to buy. This means that the trader needs to adjust by either a) accepting slightly sloppier entries (which can be countered with smaller positions and looser stops) or b) becoming more prudent on the entry trigger, accepting the fact that they might miss out on the trade altogether by being more patient (this can be most difficult to contend with for those suffering from FOMO, or the fear of missing out).

But regardless of which way the trader chooses to handle ‘exuberant trends,’ the utilization of support will be the same. It’s a near-necessity in staging trend-based approaches because this is how risk is managed so that, should the ‘trend that is your friend’ happens to bend, well at least you’re not going to be married to the bad trade.

On GBP/JPY, we have a series of such levels that traders can integrate for re-entry approaches. At 143.23 (currently being tested), we have the post-Brexit swing-high. A bit-lower at 142.50, we have a major psychological level that’s also offered swing-support to open this week. And below that at 141.55 we have a Fibonacci level that had helped to set resistance just ahead of the most recent retracement on GBP/JPY (this level was also the final target from our last GBP/JPY analyst pick).

On the resistance side of GBP/JPY, 145 is a major psychological level, and a bit-higher at 146.04 we have the most recent swing-high (set on Monday), and either of these can be an ideal initial targets. At 147.03 and 148.53 we have long-term Fibonacci levels that can function as secondary and tertiary profit targets, respectively. And should 148.53 get taken out, additional targets could be cast towards the big figure at 1.5000 and then 151.93 (Fib value and April 2015 swing-low).

GBP/JPY Technical Analysis: Digging-In to the Trend

Chart prepared by James Stanley

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

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Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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