After climbing almost 800 pips from the September low, GBPJPY failed to hold above 187.30 during yesterday’s session, forming a bearish pin bar in the process.
But before we dig too far into the technicals, I want to share some opinion regarding the Fed. Don’t worry, it all ties into the recent lesson on how the yen crosses react in times of fear.
The Fed is stuck between a rock and a hard place at the moment. On the one hand, if they hike rates it could begin to strangle the global economy, especially in the world of emerging markets.
At the same time, if they hold off on hiking rates, as they did yesterday, it is seen as an indication that slowing global growth is having an adverse affect on the world’s largest economy.
In other words, regardless of what they do from here, the affects are the same – market participants are likely to seek shelter for their capital due to concerns about the health of the global economy.
That’s exactly what we saw happen with GBPJPY during yesterday’s session. A quick comparison between GBPUSD and GBPJPY highlights the impact the yen had on the pair. In fact all of the yen crosses felt the weight of the Fed’s decision during yesterday’s session.
So where does GBPJPY go from here?
First off, the 187.30 level must hold on a daily closing basis if the bears intend to push the pair lower. In terms of support, the 184.20 handle has established itself as one to watch should the bears really get behind this move.
A break there would target trend line support from October of 2014, with a close below there opening the door for a retest of the 2015 lows at 175.00.
Despite this week’s rally, I maintain my long-term bearish outlook for the pair and still believe that the price structure between June and August of this year marked a significant top for the pair.
Summary: Opportunity to trade yesterday’s bearish pin bar at the 187.30 key resistance level. Support comes in at 184.20 along with the trend line from October 2014. A break there exposes the 2015 lows at 175.00.