GBPJPY Trades Below Key Level Ahead of BOE, Brexit

I discussed the GBPJPY on January 24th.

In that post, we reviewed the likelihood of a move lower from the pair.

Even the title of that post suggested that I was bearish.

Fast forward to today, and GBPJPY is off those levels by more than 100 pips.

But more importantly, sellers have cleared ascending channel support near 142.70.

However, GBPJPY sellers have been much more tentative than those in AUDJPY or even CADJPY.

And there’s a good reason for that.

On Thursday at 7 am EST, we have a BOE rate decision and accompanying report.

As usual, those events are likely to trigger an increase in volatility for the British pound.

That will, of course, spill over into a pair like GBPJPY.

Perhaps more so given the yen’s activity of late in response to a sudden dip in risk assets.

But even if Thursday’s events don’t trigger volatility for the pound, the significance surrounding Friday might.

Friday, January 31st, is the last day that Britain is officially part of the European Union.

It isn’t an event per se, but that doesn’t mean markets won’t be jittery.

As you may well know, though, I don’t spend my time trying to figure out what rate decisions or Brexit could mean for a market.

At the end of the day (literally), the market’s response to events like these is what truly matters.

That response is the only thing that determines whether the outcome is positive or negative.

And that “market response” is another way of saying price action.

So, although I do expect an increase in volatility for a pair like GBPJPY later this week, the resulting price action is what I’ll be focusing on.

As long as GBPJPY remains below former ascending channel support on a daily closing basis, I’ll stay relatively bearish.

The “daily closing basis” refers to 5 pm EST when using New York close charts like the ones I use for trading.

Go here to get access to these charts.

That said, sellers still need to take out 141.00 to see 139.30 and perhaps much lower levels, such as 135.50 and 130.70.

On the flip side, a daily close back above 142.70 or thereabouts would negate the bearish outlook.

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