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Talking Points:
- GBP/JPY Technical Strategy: Intermediate-term: bullish; short-term: bullish.
- GBP/JPY has put in a strong bullish continuation move after crossing the key area of resistance at 143.46.
- If you’re looking for trading ideas, check out our Trading Guides. If you’re looking for shorter-term ideas, check out our IG Client Sentiment.
After the Fed hiked rates in December of last year, GBP/JPY set a new high at 148.46 before spending much of the next four months heading-lower. By mid-April, the pair had traded all the way down to the 135’s and there was the very realistic possibility of the entire ‘Trump Bump’ in the pair being erased as a combination of risk aversion and concerns around Brexit drove bulls out of the market.
But after French elections, the risk trade got a serious shot-in-the-arm; and this was not irrelevant to GBP/JPY, as each day since has seen a continuation of bullish price action build in the pair. In the 14 trading days since the weekend of French elections, GBP/JPY has seen only 4 ‘down days’ and each of those were well-supported as bulls used any pullback as an excuse to buy more. On the chart below, we’re looking at the recent ‘phases’ of GBP/JPY price action, as the Trump Bump led into four months of retracement; much of which has been erased in the two-and-a-half weeks since French elections.
Chart prepared by James Stanley
The only down-side of this move for bulls is the fact that GBP/JPY has seen very little pull-back and, at least at this stage, the move is rather overbought. On the 4-hour chart below, we can see RSI divergence building over the last week as prices just refuse to pull-back.
Chart prepared by James Stanley
Given the veracity of the bullish move, traders should be able to comfortably move-forward with a bullish trend-side bias. But given the over-bought nature of GBP/JPY at the moment, traders will likely want to wait for a pull-back or some element of consolidation before looking to add bullish exposure. On the chart below, we look at three possible support areas to watch in the effort of catching the next ‘higher-low’ in GBP/JPY.
Chart prepared by James Stanley
--- Written by James Stanley, Strategist for DailyFX.com
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