Analys från DailyFX
GBP/JPY Technical Analysis: Over 76.4% of Abe-nomics Wiped Out in GBP
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Talking Points:
- GBP/JPY Technical Strategy: This pair dropped by 600 pips since last Wednesday’s swing-high at 139.00.
- GBP/JPY has dropped to levels not seen since 2012; be careful of chasing as an elevated ATR-reading puts in scope the veracity of recent moves.
- If you’re looking for additional trade ideas, check out our Trading Guideand if you’re looking for shorter-term ideas, check out our SSI indicator.
In our last article, we looked at the eye of the storm in Macro-economic headlines in GBP/JPY. With both currencies seeing intense speculation around the prospect of continued risk aversion and fears of a global slowdown, GBP/JPY has been putting in some especially volatile moves since the Brexit referendum two weeks ago.
In the Sterling, we have a continuation of the dramatic drop initially seen around Brexit, as the Bank of England has struck a dovish tone in an apparent attempt to proactively counter slowdown in the U.K. economy expected as a result of Brexit. And in the Japanese Yen we have continued strength being driven by risk aversion, with the USD/JPY driving closer to the psychological level near 100.00. This is notable because further breaches lower in USD/JPY, particularly below these big psychological values, may elicit comments from the Bank of Japan or the Japanese Finance Ministry towards intervention in the spot market, much as we saw in the day after the Brexit referendum. And as JPY surges to fresh highs against major currencies, such as the US Dollar or the British Pound, traders need to be on guard of getting caught on the wrong side of a market as a Central Bank prods the other side.
The ‘Brexit low’ in GBP/JPY at 133.19 had held in the pair until this morning as the Bank of England delivered a dovish Financial Stability report, indicating that a rate cut may not be too-far-off in the future. This echoed the sentiment of Mr. Carney’s impromptu press conference last week in which he said that the bank may be looking at a rate cut at some point this summer to offset the expected slowdown in the economy as a result of Brexit. This sent GBP price action lower, and GBP/JPY breached through levels not seen since 2012.
In March/April of 2012, price action in GBP/JPY had set a swing-high in the zone from 132.50-133.50, just before setting a higher-low ahead of the ‘Abe-nomics’ rally that lasted for nearly three years. But much of that rally has come undone already, with price action on GBP/JPY breaking through the 76.4% Fibonacci retracement of that move at 135.47. That level had appeared to offer a semblance of support in the latter portion of last week, and this can be appropriated by traders looking to get short GBP/JPY in the aim of trading a continuation of the move lower.
While this level may appear far away from current price action, given recent volatility in GBP-pairs with Daily ATR at over 500 pips as of this writing, that type of retracement could come-in over a single day’s worth of moves. This elevated ATR also behooves patience for those looking to trade this on either side of the move, as getting caught in the wrong direction could be especially costly with the prospect of the down-trend being offset by threats/fears/concerns around the Bank of Japan intervening in the spot market to quell Yen-strength.
Should resistance form in this prior zone of support between the major psychological level of 135 to the 76.4% Fibonacci retracement at 135.46, traders can look at the prospect of down-side continuation strategies.
Created with Marketscope/Trading Station II; 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.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
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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