Daily Price Action

GBPJPY: Fibonacci Retracement Is All You Need


Sometimes all you need is a higher time frame and a simple tool to find the most likely path forward for any currency pair. This simple trick has worked extremely well for several of the yen pairs recently, GBPJPY included.

I mentioned the wedge break two weekends ago, noting that a move below the 158.50 area could trigger additional weakness toward the 156.00 handle. The next few sessions gave us that break, which took the pair to a low of 151.63, or about 700 pips lower from when I published the commentary.

Another noteworthy detail of that analysis is that 156 is the 50% Fibonacci retracement when measuring from the 2011 low to the 2015 high. This level also served as a key pivot between May and July of 2013.

So if the 50% level lines up with a multi-year pivot, there’s probably a good chance that others do as well.

Let’s take a look:

GBPJPY fibonacci retracement levels

You should notice some glaringly obvious intersections between Fib areas and swing highs and lows.

The truth is, the chart you see above is the only thing that led me to make this post last September. In it, you will see the same weekly chart with Fibonacci levels drawn.

It was a bold call for sure, but it was impossible to ignore that kind of conformity.

Three months later in December, the pair broke the neckline of a large head and shoulders reversal. The topping pattern far surpassed the initial 1,700-pip measured objective as the pair is currently down more than 3,000 pips from 183.50, which is where it was trading at the time.

I don’t say this to brag, but rather as a way of showing how powerful these simple techniques and patterns can be when used together. The breakdown that began in June of last year was first identified using nothing but the Fibonacci retracement tool and was later confirmed (and traded) using the head and shoulders pattern. That’s it!

Okay, so where to from here?

If you noticed in the chart above, there is another area that sticks out like a sore thumb yet remains untested. The 147.00 handle, also the 61.8 retracement level, acted as resistance in February of 2013 before later serving as support between June and August of the same year.

With the pair now below 156 on a daily and weekly closing basis, the chance for a move toward 147 has increased exponentially.

As you may well know, former support becomes new resistance. And with the current bearish trend not showing any signs of stopping, the 156 area might just be the place to watch for the start of the next leg down.

Want to see how we are trading this setup? Click here to get lifetime access.

GBPJPY key support and resistance levels on the weekly chart

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