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GBP/JPY Technical Analysis: May’s Support is Now Resistance

GBP/JPY Technical Analysis: May’s Support is Now Resistance

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Talking Points:

In our last article, we looked at GBP/JPY as a bearish channel found support around the vaulted psychological level of ¥140.00. But as we shared, given the backdrop of another round of U.K. elections that seemingly made the context around upcoming Brexit negotiations even more-cloudy, traders would likely want to retain somewhat of a down-side bias. We had also looked at the key zone of prior support and potential resistance at the ¥141.59 level, which is the 50% retracement of the ‘Brexit move’ in GBP/JPY. On the weekly chart below, we’re looking at this set of retracement levels with emphasis on the half-way point of ¥141.59.

Chart prepared by James Stanley

Since GBP/JPY topped-out in mid-April, sellers have been rather active as the pair has driven-lower by more than 900 pips. There has been quite a bit of headline drama to accompany this situation, as the weakness created from the most recent round of U.K. elections was at least partially offset by a rather hawkish BoE outlay last week. But as we warned, that ‘hawkish’ theme at the BoE was likely transitory in nature; and just yesterday we saw comments from Mark Carney that had essentially ruled out the prospect of a near-term rate hike. This drove GBP/JPY back below the descending trend-line.

This morning produced a peculiar scenario in which the Chief Economist of the Bank of England, Andy Haldane, said that he may be voting for a rate hike in the second half of the year. This speaks to the hawkish tonality from the BoE last week, and this also appears to run contrary to what Mr. Carney had said just yesterday. The net impact of this morning’s comments from Mr. Haldane was a brief run of strength in Sterling; and in GBP/JPY, this brought prices up to resistance at our familiar level of 141.59.

Chart prepared by James Stanley

This can open the door to bearish continuation in GBP/JPY, given one caveat: Traders would need to be comfortable carrying long-Yen exposure or else, they may be able to better-direct those bearish Sterling strategies elsewhere, such as GBP/USD or EUR/GBP. Given that we’ve seen a rather consistent string of Yen-losses after last week’s BoJ meeting, we could be looking at a scenario in which both GBP and JPY lose value; making the prospect of a short position in GBP/JPY rather challenging.

However, for those that are looking to take on long-Yen exposure, short positions could be sought with stops set above today’s swing-high of 141.77 and targets directed to 139.50 and then the prior swing-low of 138.65. For those that would like a bit more room to work, the prior batch of swing-resistance around 142.50 could also be used for stop placement, as well.

Chart prepared by James Stanley

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

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

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