Talking Points:
- The British Pound continues to exhibit little discernable direction after the BoE’s rate hike.
- Sentiment is near-flat in GBP/USD, with 1.06 traders long for every one short. Click here to access our IG Client Sentiment Indicator.
- Want to see how GBP and USD are holding up to the DailyFX Forecasts? Click here for full access.
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Last month we looked at a bull flag formation in GBP/JPY as the pair worked-in support around a key Fibonacci level around 148.29. This is the 61.8% Fibonacci retracement of the May-October 2016 major move in the pair; but perhaps more importantly, this level had helped to cauterize resistance in the pair in December, and that resistance held all the way into September. This is when markets began pricing in the prospect of rate hikes from the Bank of England, and this has largely kept GBP/JPY supported since.
GBP/JPY Daily: Prior Fibonacci Resistance Becomes Fresh Fibonacci Support
Chart prepared by James Stanley
This isn’t an entirely one-sided equation, however, as prices have been beating on the door of support for over a week now and still bulls haven’t been able to bring prices up to fresh highs. There’s a level of resistance derived from a different Fibonacci retracement that appears to be helping carve-out resistance, and that level runs at 151.37 as the 76.4% retracement of the ‘Brexit move’ in the pair, taking the June 2016 high down to the flash crash low. This set of levels has been added to the below chart in red.
GBP/JPY Daily: Current Resistance Assisted by 76.4% Retracement of ‘Brexit Move’
Chart prepared by James Stanley
While support showing around prior resistance of 148.29 can strengthen the argument for additional topside in the pair, the continued inability of bulls to push prices to new highs, combined with the increasing aggressiveness of bears as indicated by the recent lower-highs is noteworthy. The British Pound was rather weak after that recent rate hike, largely on the basis of the dovish stance at the Bank of England. And those previous trends of aggressive Yen weakness appears to have calmed, at least for now. This leaves a lack of fundamental drivers, and correspondingly prices in GBP/JPY remain in a rather unmotivated and unattractive point to look at trend-side strategies. What could change that is an incline over the 151.38 Fibonacci level that had previously helped to set resistance. At that point, 151.38 could be approached similarly to 148.29 with the expectation for prior resistance to become new support.
Alternatively, a break-below the October low of 146.93 can open the door for short-side scenarios. Until then, be careful of playing in-between the cracks of support and resistance in GBP/JPY while the pair attempts to dig-out a longer-term direction.
GBP/JPY Hourly: Lack of Discernible Direction Throughout Much of November
Chart prepared by James Stanley
--- Written by James Stanley, Strategist for DailyFX.com
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