TechnoMeter

In the week since that last article, volatility in GBP/JPY has tamed a bit as a ~200-pip range has developed. This range can be seen as an upward-sloping channel that has a slightly bullish bias; with slightly higher-highs and slightly higher-lows. This is somewhat indicative of a market without significant conviction; and as we discussed last week this is likely resultant from the fact that both currencies are being or have been driven weaker by extremely dovish monetary policy. In the U.K., the Bank of England has already launched a ‘bazooka’ of stimulus and there is the thought that more accommodation may be coming as ‘Hard Brexit’ appears more likely. And in Japan, the Yen has seen continued resistance as markets factor in the probability of even more stimulus at some point in the future.



The price action channel that has formed over the past week can be dangerous given the fact that ‘longer-term’ support and resistance in the channel is more than 200 pips away from support or resistance. So for the trader looking to buy support in the channel, they’d likely want to look at stops below the ‘flash crash’ low of 125.00. And on the converse, for traders looking to take short positions off of the resitsance portion of the channel, this is would be more than 150 pips away from the ‘big picture’ resistance level at 130.00.

And given GBP/JPY’s traditional propensity to be a ‘big mover,’ traders would likely want to continue to move forward with a great deal of caution; being extremely picky on entries. For short-side strategies, this could be resistance from the zone between 129.25-130.00. And for bullish approaches, support developing above 125, and perhaps more attractive, support developing at or above the 126 handle that saw a brief higher low last Wednesday, could open the door for top-side approaches. At the very least, with such an approach of prudence traders will be able to control the risk on the entry as opposed to being in a position in which they have to take a wide-stop on a volatile pair that’s in the brief lull of a range.

more...