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GBP/JPY Rallies to Resistance at Prior 2018 Low: Will Sellers Respond?

GBP/JPY Rallies to Resistance at Prior 2018 Low: Will Sellers Respond?

2018-05-30 17:37:00
James Stanley, Currency Strategist
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Talking Points:

- GBP/JPY is bouncing off of fresh 2018 lows as risk aversion has helped to drive Yen-strength.

- Prices are currently finding a bit of resistance off of the prior 2018 low around 145.00; but there may be a deeper retracement yet. We look at a couple of different ways of approaching the pair below.

- Q2 forecasts are now available from the DailyFX Trading Guides Page. If you’re 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.

GBP/JPY Bounce to Resistance at Prior 2018 Low

This week started off with an increased slate of worry as financial markets gripped for the possibility of another summer of political volatility out of Europe. This helped to bring considerable strength into the Japanese Yen, helping pairs like EUR/JPY and GBP/JPY fall down to fresh 2018 lows.

In GBP/JPY, the selling was especially noticeable, as both a weak British Pound and a strong Japanese Yen contributed to a rather quick and heavy move. The British Pound has been weak for well-over a month now, with a bearish reversal starting in mid-April that hasn’t yet reversed. We looked at short-side continuation last week when GBP/JPY had bounced up to a prior area of support around 147.03. That led into the quick bearish continuation move mentioned above, which soon took out both targets at 146.00 and 145.00; and prices continued to sell-off to as low as 143.20.

GBP/JPY Daily Chart: Bounce From Fresh 2018 Low, Resistance at Prior 2018 Low of 145.00

gbpjpy daily chart

Chart prepared by James Stanley

At this point, prices are finding a bit of resistance off of the prior 2018 low and our second target from the prior setup, around the 145.00 psychological level. This area had previously led into an aggressive reversal in March; but that was very much driven by the prospect of higher rates out of the UK – an idea that seems quite distant at the present moment in time. The big question here is whether sellers will remain so aggressive as to hold resistance at this level.

Going down to a shorter-term chart, we can see that the current retracement is but a drop in the bucket of the recent bearish move, retracing approximately 23.6% of the sell-off that started in mid-May when prices reacted off of the 150.00 level.

GBP/JPY Four-Hour Chart: Bounce Up to 23.6% Fibonacci Retracement

gbpjpy four hour chart

Chart prepared by James Stanley

Taking this a step further and going down to the 30-minute chart, we can see where prices have started to find sellers as this area on the chart has been encountered. But, as of yet, buyers have shown no sign of relenting, as higher-lows have been rather persistent since that low was set yesterday.

GBP/JPY Hourly Chart: Buyers Yet to Abate as Higher-Lows Continue into Resistance Zone

gbpjpy 30 minute chart

Chart prepared by James Stanley

Moving Forward

At this point, traders will likely want to approach GBP/JPY with a bearish bias, looking at the pair as an attractive vehicle should the current them of risk aversion continue to show.

For those that want to move forward aggressively – a break below the prior short-term swing-low looked at above, around 144.40, can re-open the door for bearish continuation. This would be looking for stops above the 145.00 high, and looking for initial targets around 143.75. This would be a slightly better than one-to-one risk-reward, at which points stops can be adjusted to break-even with the remainder of the lot looking for more.

However, if we do not get that down-side break to a fresh swing-low in short order, a deeper retracement may be in the cards, and there are a couple of additional levels that keep the short-side of the pair attractive. There’s a prior swing-low/high around 145.30, and a bit deeper we have the 38.2% retracement at 145.80.

If we get a break back-above the 50% retracement at 146.58, the bearish trend would come into question, and bullish strategies can start to be entertained in the pair.

GBP/JPY 30-Minute Chart: At the Decision Point

gbpjpy 30 minute 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

Contact and follow James on Twitter: @JStanleyFX

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

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