GBP Technical Analysis

This pair is becoming compressed. It has broken an inner supportive trend line, which was a bearish sign, but it continues to make new highs, albeit in small steps, as well as new major lows.

Daily price is located below Ichimoku cloud for the bearish market condition: the price is breaking 1.2935 support level for the bearish trend to be continuing with 1.2795 nearest bearish daily target to re-enter.

If D1 price breaks 1.2935 support level on close bar so the primary bearish trend will be continuing with 1.2795 nearest target.
If D1 price breaks 1.3371 resistance level on close bar from below to above so the local uptrend as the bear market rally will be started with the good possibility to the bullish reversal.
If not so the price will be on bearish ranging within the levels.

• Recommendation for long: watch close D1 price to break 1.3371 for possible buy trade
• Recommendation to go short: watch D1 price to break 1.2935 support level for possible sell trade
• Trading Summary: bearish

Resistance	Support
1.3371	1.2935
N/A	1.2795

SUMMARY : bearish

“The gap to open trading post-Brexit is thus far of the breakaway variety. The current level (slope line near 1.2800) and/or 1.2500 could inspire a ‘squeeze’ as part of consolidation before another leg lower. 1.2500 relates the 2009-2014 range (127.2% of that range from the 2014 high) and decline from 2007 (decline from 2014 = .618% of 2007-2008 decline).”

1.2800 is still the low and the outside week (last week) suggests that Cable is building a base to work higher from.

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Daily price is on secondary rally within the primary bearish market condition: the price is testing 1.3076 resistance level for the rally to be continuing with 1.3204 target to re-enter for the possible bullish reversal.

GBP/USD M5: 53 pips range price movement by U.K. Services PMI news event

Daily price is on breakdown within the primary bullish market condition: the price broke symmetric triangle pattern to below for the possible bearish reversal, and Chinkou Span line crossed the price for the breakdown to be continuing.

If D1 price breaks 1.7128 support level on close bar so the reversal of the price movement from the ranging bullish to the primary bearish market condition will be started.
If D1 price breaks 1.7543 resistance level on close bar from below to above so the bullish trend will be resumed.
If not so the price will be on ranging within the levels.

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.

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Price action has been unable to find solid-enough footing to move back into that bullish trend; and given that this retracement has now moved by more than 800 pips, traders are likely going to want to continue proceeding with caution in GBP/JPY.

The psychological level at 140.00 could be interesting as ‘higher low’ support; but traders are likely going to want some additional confirmation before trading on this thesis given that price action had just set another ‘lower high’ earlier today. If price action can break above this swing-high around 141.50, bullish continuation strategies could become attractive gain.

Conversely, a deeper support test could open the door to short-term bullish reversal strategies in the direction of the longer-term trend. Potential support at 138.67, which is the 38.2% retracement of the most recent major move in GBP/JPY (taking the October 2016 low to the recent swing-high), and again at 135.65 (the 50% retracement of that same move), could open the door to such an approach.

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This developed into a drop of over 1,200 pips in the following month, and this led to many questions around the sustainability of the up-trend in GBP/JPY. But after catching support at the vaulted 50% level of that most recent major move (taking the post-Flash Crash low up to the December high), hope was restored that bulls may be able to re-take control of GBP/JPY price action. In our last article, we marked the level at 142.50 as significant, as this is 50% of the retracement move as well as being a psychological level. The fact that we were able to drive over this level indicates that bull may be able to continue driving prices higher, and this opens the door for bullish strategies.

Given recent technical structure, there are three significant areas of price action swings for traders to investigate for support variable and stop placement, each outlined on the chart below. For traders looking at aggressive entries, a batch of support around the prior swing of 141.70 could be usable. For those looking to give the entry a little more ‘room to work,’ the zone around 140.75 looks more operable. And for those that want a conservative approach, the back of support around 139.00 could be attractive as this could get risk levels below the significant psychological level of 140.00.

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Daily

-There is no change to Cable comments other than noting that the rate continues to hold 1.2400 which is viewed as a positive in the context of the possible double bottom. “Recent GBP/USD action is consistent with a range but perhaps within a new trend (higher). The area around 1.2400 (55 day average, former highs and lows) should still be watched for support. Weakness below (daily close) would put the year open at 1.2278 back on the map. Daily highs from late January cluster around 1.2600 and is where I’d watch for near term resistance.”

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