Analys från DailyFX
GBP/JPY Technical Analysis: Turning Trends Like a Rolling Stone
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Talking Points:
- GBP/JPY Technical Strategy: Bullish with legitimate continuation-potential.
- GBP/JPY has seen a coalescence of fundamental themes, as GBP strength is coming-in with JPY weakness, leading to what’s been aggressive top-side move on the pair over the past three weeks.
- Prior analyst pick limited out at 141.50 final target.
- If you’re looking for trading ideas, check out our Trading Guides.
In our last article, we looked at the recently re-fired up-trend in GBP/JPY as the pair was bullish and bursting to fresh 4-month highs. A key level of this move was at 138.83, as this was the September swing-high in the pair and had helped to show short-term resistance as GBP/JPY was driving-higher. As we wrote in our last article, this level could be an opportune area to look for support to develop in the effort of the bullish continuation entry; and after GBP/JPY set another fresh high at 141.75 in the days following, a retracement to start this week brought price action right down to that support level before another leg of the up-trend got under way. We wrote about this in yesterday’s Market Talk article entitled, JPY: How to Work With the Trend That Barely Bends.
Chart prepared by James Stanley
To put matters in scope: It was only 7 weeks ago that we were calling GBP/JPY the ‘race to the bottom’ as weakness was showing in both currencies. The Bank of England wanted a weaker-GBP to help offset Brexit risks, and the Bank of Japan had just changed their stimulus policy to target yields rather than rigid amounts of bond purchases. Both of these had the potential to drive longer-term weakness into each currency; but after the BoE began to take notice of the rising inflationary forces, the prospect of even-more dovishness out of the U.K. began to look less-likely. Those prior down-trends in GBP have reversed into strength; and while the U.S. Dollar puts in a near-historic move throughout much of November, GBP has held its own: GBP/USD has developed a fairly consistent range.
But when this GBP-strength has been coupled with JPY-weakness, we’ve had some real dynamic price action to work with. GBP/JPY is up over 12.8% since the lows of election night, just three weeks ago. The pair is continuing to run-higher, working on another fresh 4-month high as of this writing, with the ‘post-Brexit’ swing-high at 143.23 nearing.
As we wrote in our last article, approach here should be one of prudence. Yes, this has been a fantastic move, but after such a volatile pair runs so hot, so quickly, traders will want to be cautious of chasing and instead, wait for some element of support to show so that risk can be properly managed.
For re-entries, levels at 140.95, 140.00 and again at 138.83 could be interesting. Should prices break below 137.50, the bullish approach would likely come into question, at least for the time being. On the resistance side of the coin, the post-Brexit swing-high is at 143.32, and at 145.00 we have a major psychological level. Each of these can be ideal places to begin plotting profit targets and/or looking for retracement of the bullish move in the effort of catching a support entry in the periods following. After those resistance levels, areas at 147 and 148.50 become interesting for next-resistance.
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.
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
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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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