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GBP/JPY Breaks Down After Breach of Post-Brexit Trend-Line

GBP/JPY Breaks Down After Breach of Post-Brexit Trend-Line

2018-02-28 17:31:00
James Stanley, Currency Strategist
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Talking Points:

- GBP/JPY is getting crushed today after bears were finally able to push prices below the post-Brexit trend-line, which held the lows in the pair throughout last year. As we wrote last week, a break-below that trend-line could open the door to a significant bearish movement, and that’s what’s shown thus far.

- Prices have jumped all the way down to 147.04, which is a Fibonacci level that had served as both resistance and support last year, including the double bottom formation that came into play in Q4 of last year.

- Are you looking to improve your trading approach? Check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

If you’re looking for longer-term analysis on GBP, JPY or the US Stocks, click here for our Trading Forecasts.

GBP/JPY Trend-Line Break Opens the Floodgates of Selling

GBP/JPY is getting crushed this morning after sellers were finally able to push prices below the post-Brexit trend-line. We’ve been following this theme over the past couple of weeks as buyers have shown multiple iterations of support off of this trend-line projection. But as each of those responses were growing weaker, as indicated by the lower-highs accompanying each bounce, we posed the question of ‘how much longer might this trend-line hold?’ The answer was delivered today in definitive fashion, as that bearish trend-line break opened the floodgates of selling in GBP/JPY price action.

GBP/JPY Daily: Bears Take-Over After Trend-Line Succumbs to Selling Pressure

gbpjpy daily chart

Chart prepared by James Stanley

Last Friday, we looked at resistance plays off of the 150.00 psychological level for short-side exposure. That level came into play, albeit briefly shortly after this week’s open, at which point sellers took over and have not looked back. As we wrote – initial targets could be set to 149.00 but if that trend-line broke, the door could open to significantly more.

That’s precisely what’s happened as that trend-line breach has opened to a cascade of selling, and prices are now pushing down to fresh five-month lows in the pair. But – you probably noticed another interesting area on the above chart, and that’s the price of 147.04. This is the 38.2% Fibonacci retracement of the 2011-2015 bullish run in the pair; and the 50% retracement of that same Fibonacci study helped to mark the post-Brexit high in the pair when it came into play in early-February. This was a really important level in GBP/JPY price action last year, as it had helped to form a triple top in the first half of the year; and later became support to help produce a double-bottom in Q4.

This is a level that should not be discounted, as recent history has shown a strong tendency to produce a shift in this area.

GBP/JPY Daily Chart: Significant Support/Resistance From 2017 Coming Back Into Play

gbpjpy daily chart

Chart prepared by James Stanley

Moving Forward

The bearish theme here has an element of attraction. Both prospects of Yen strength and GBP-weakness can remain interesting in the near-term, and this bearish breakout in price action goes along with this fundamental backdrop. The complication at this point would be one of strategy; as we’ve sold off to a huge area of prior support and prices are considerably stretched after a rather outsized move.

This opens the door to two possibilities: Waiting for prices to move-up to catch another instance of lower-high resistance; or, the possibility of short-term bullish reversals. The bullish reversal could be a dangerous way of going about matters as all we have is prices testing support; and any element of buyer response is rather limited given that this level just came into play a couple of hours ago. The more attractive way of proceeding would be to look for another lower-high so that bearish continuation could be focused upon. On the hourly chart below, we’re looking at three potential resistance levels inside of this week’s swing high at 150.00.

GBP/JPY Hourly Chart: Lower-High Resistance Potential For Bearish Continuation

gbpjpy hourly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on GBP and/or JPY? Our DailyFX Forecasts for Q1 have a section specifically for each currency. We also offer a plethora of resources on our GBP/JPY page, and traders can stay up with near-term positioning in GBP/USD and USD/JPY via our IG Client Sentiment Indicator.

--- 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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