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GBP/JPY Technical Analysis: Back and Forth, Buyer Support

GBP/JPY Technical Analysis: Back and Forth, Buyer Support

James Stanley, Senior Strategist

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Talking Points:

In our last article, we looked at the return of bullish price action in GBP/JPY after an outsized retracement of the previous bullish-move. And that prior bullish move was significant, as GBP/JPY rallied-higher by more than 2,100 pips from the election-night lows, setting a new near-term high at 148.45 in mid-December that has yet to be re-approached. This led-in to a retracement of more than 1,100 pips, with price action finally finding support at the 50% retracement of the post-Election move, at which point buyers returned to run the pair back-above ¥140.00. I realize that this is quite a bit of back and forth; on the chart below we’re looking at what is, in essence, congestion after a really strong move-higher.

GBP/JPY Technical Analysis: Back and Forth, Buyer Support

Chart prepared by James Stanley

To simplify all of this recent back-and-forth price action in GBP/JPY, the daily chart below strips away all of the above denotations to, instead, focus-in on a building wedge formation on the daily chart.

GBP/JPY Technical Analysis: Back and Forth, Buyer Support

Chart prepared by James Stanley

Given the veracity of the prior bullish move, with price action remaining supported above the 50% retracement of the predominant ‘post-Election’ trend; the top-side of the pair can remain as attractive. Of particular note was this week’s price action, in which GBP/JPY saw an aggressive bounce above the ¥140.00-handle ahead of the Bank of England’s Super Thursday. After the BoE took inflation forecasts lower, sellers took control of GBP, driving GBP/JPY right back down to the prior zone of support around 140.82. But after a slight drive below the prior low, buyers have returned to push prices-higher.

GBP/JPY Technical Analysis: Back and Forth, Buyer Support

Chart prepared by James Stanley

This can open the door for bullish approaches, with the zone of potential support around 139.50 being an ideal area to investigate for stop placement. For those that want to take a more conservative stance towards bullish approaches on GBP/JPY, a print above ¥142.00 would denote a short-term ‘higher-high,’ at which point traders can look to catch the next higher-low in the pair with a bit of additional confirmation that bulls may be able to continue driving the pair-higher.

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

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