Analys från DailyFX
GBP/JPY Technical Analysis: The Big Move Awaits
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Talking Points:
- GBP/JPY Technical Strategy: Intermediate-term: Congested; Short-Term: Congested.
- GBP/JPY continues to display some element of congestion; but once resolved, GBP/JPY looks ready to stage a ‘big move’.
- If you’re looking for trading ideas, check out our Trading Guides. And if you’re looking for ideas that are more short-term in nature, please check out our Speculative Sentiment Index (SSI) Indicator.
In our last article, we looked at the continued congestion in GBP/JPY as the next directional move had continued to prove elusive. And a week later, we have little additional information that would indicate that the next directional move is afoot. While the pair was previously driven-lower with weakness around the British Pound from a combination of a) a dovish Bank of England and b) little hope for that changing as long as inflation remained subdued; more recently we’ve had a re-emergence of Yen-strength as risk tolerance has waned after last week’s rate hike from the Federal Reserve.
The net impact of all of this has been even more congestion…
So, rather than dial in on an hourly chart today in the effort of deciphering where this chop may resolve itself – we’re going to go tops-down in the effort of determining intermediate-term strategy in GBP/JPY.
Taken from the ‘Trump Bump’, price action in GBP/JPY is still bullish in nature as we’re above the 50% Fibonacci retracement of the most recent major move on the Daily chart. This level comes in at ¥136.65 – and notice how this level caught the bottom of an aggressive retracement in December and January. After this support level came into-play, the bulls returned and the up-trend around the ‘Trump Bump’ remained alive.
Chart prepared by James Stanley
After that support inflection came-in, it looked as though bulls were ready to re-take control; and they did, for approximately 800 pips. But that strength couldn’t last long enough to set a new high, as sellers returned to produce a ‘lower-high’ as shown on the 4-hour chart below:
Chart prepared by James Stanley
So, the net of the two above charts is a bigger picture up-trend with a shorter-term bearish move as a retracement of that up-trend. The complication arises when we look at how supply and demand has shifted as GBP/JPY has traded at or near fresh short-term lows. Frankly, each new low has seen bears dry up while bulls bring price action back. There has been a dearth of bearish directional movement whilst below support; and this makes the under-side of GBP/JPY unattractive for momentum-based strategies.
Chart prepared by James Stanley
The primary issue with the under-side of GBP/JPY price action at the moment is a lack of seller conviction after new lows have been made. This can be indicative of a ‘bigger’ support level lurking below that sellers don’t want to trigger in-front of for fear of catching a bullish reversal. So the net setup would be a type of a descending wedge with an under-tested area of support. But we can apply the same logic: Using a break below this key long-term support level at 163.65 to open the door for bearish strategies; and a top-side break above the descending trend-line (which is also confluent with swing-high resistance) to open the door for bullish continuation strategies:
Chart prepared by James Stanley
— Written by James Stanley, Analyst for DailyFX.com
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What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
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Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
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EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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