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GBPJPY False Break in the Works?

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GBPJPY has had a rough few weeks since breaking down on August 21st. That break of wedge support led to an impressive 1,100 pip decline in just 10 trading days.

The move put the pair below the 185 key handle, an area that can be seen acting as support and resistance since February. So naturally we were looking for a selling opportunity on a retest of the level as new resistance.

Last Thursday’s session did produce a bearish rejection bar that looked promising, however the bulls weren’t quite ready to throw in the towel just yet.

Although the pair ended last week above the key level, it’s important to keep things in perspective. If you recall from my commentary last week, I mentioned that even if the pair managed to push higher, which it did, it wouldn’t change my longer-term bearish outlook.

Today we can see that the pair has returned to the area defined by the 185.00 and 185.35 key levels. Basic technical analysis tells us that this level should now act as support, but I’m not so sure that scenario will play out.

Here is one of my tweets from Friday as the pair confirmed a continuation pattern on the 1 hour chart…

Just recently the pair retested this level as new resistance…

GBPJPY 1 hour wedge break

While I wouldn’t necessarily play this type of break on such a low time frame, it does raise a red flag for the bulls. This type of formation is typically viewed as a continuation pattern, which in the case of GBPJPY would mean a continuation of the downtrend that began late last month.

If the pair fails to rally from here and closes back below the 185 area, it would be a sign of weakness and would indicate that further losses are likely. Of course if it does catch a bid and manages to rally from current levels, it would leave us watching for selling opportunities at higher levels.

Keep in mind that I’m bearish on the yen crosses as a whole as we move deeper into a risk off environment, so it isn’t altogether surprising that I’m bearish on GBPJPY.

Summary: Watch for selling opportunities on a daily close back below 185.00. Key support comes in at 182.50 as well as trend line support from October of 2014. Break that and we could see a retest of the 2015 lows at 175.00. Alternatively, a rally from current levels would have us watching for bearish price action at 187.75.

GBPJPY key levels in focus

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1 comment
Justin Bennett says

Hi Fasih,

Welcome! Glad you enjoyed the commentary.

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