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On Tuesday we looked at a rising wedge on the GBPJPY daily chart. At the time the pair was trading at 152.48 and had yet to test wedge resistance for the second time.
Shortly after I published that commentary, buyers closed the pair above resistance at 153.70.
That signaled higher prices were likely, right? Not quite.
One of my most important trading rules is that I never buy topside breaks of rising or ascending patterns. The same holds true for selling downside breaks of falling or descending patterns.
So even though the GBPJPY broke to the upside on Wednesday, I didn’t see it as a buying opportunity. In fact, I was waiting to see if the pair would close back below the level to produce a false break.
Today may do just that. At the moment prices are hovering near 153.35 and buyers are struggling to recover.
On top of that, the intraday charts just revealed a breakdown of a key area.
That’s the same chart I posted in the member’s area a few hours ago. Since that time the pair has tested the 153.60 area as new resistance.
The intraday break below the 153.80 area signals that sellers are beginning to regain control. However, it’s going to take a daily close (New York 5 pm EST) below 153.80 to put this rally at risk for next week.
If this week’s price action does end up being a false break, we could see an extended move lower over the coming weeks. Key support comes in at the lower boundary of the rising wedge between 151.50 and 152.00. A close below that would expose 149.35.
Alternatively, a daily close back above 153.80 would keep the rally intact. Buyers would need to mount an impressive rally to accomplish that, and they’re beginning to run short on time.
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