A few weeks ago we were discussing a broadening wedge that had been forming on the GBPJPY 4-hour chart. These patterns tend to signal exhaustion, which meant a pullback to support for the yen cross.
In addition to the broadening wedge, the pair had also formed a bearish pin bar on December 15th. The candlestick pattern occurred at the 147.00 handle, a level of interest that I first mentioned on December 1st.
You can see both price structures in the December 19th commentary.
One of the support levels we were watching on the way down was 143.20. This area has come under fire today after yesterday’s session carved out a bearish engulfing candle.
However, the bearish engulfing did not form at a swing high nor did it break key support, so it isn’t a valid signal on its own.
But if sellers can manage a daily close below the 143.20 region, there wouldn’t be much to stop a slide toward the 138.80 handle. This level has influenced the pair since June and is also the September high.
Furthermore, we can see how the GBPJPY pivoted from this area between the 21st and 29th of November, so there’s little doubt that 138.80 is significant.
The question from here is twofold:
- Can sellers manage a daily close below the 143.20 area?
- If yes, will the level hold as new resistance if tested?
As long as these questions go unanswered, I’ll remain on the sideline. And if I do decide to enter, it’ll likely be a half-sized position due to the counter-trend nature of the trade and holiday liquidity concerns.
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