While Friday’s flash crash in the British pound came as a surprise, the breakdown in the currency wasn’t so shocking. Most of its pairings were already showing signs of further weakness including the GBPJPY, which had carved out a series of lower highs into the 129.60 handle.
Last week’s move put the yen cross below the critical level on a weekly closing basis. This means that any retest of the 129.60 area is likely to trigger an influx of offers.
While Friday’s session printed a low of 124.77 (this will vary depending on your broker), the price I’m keeping an eye on moving forward is 125.50.
A glance at the price action between 2010 and 2012 illustrates the significance of the area.
If we see this level give way on a weekly or even a daily closing basis, there wouldn’t be much stopping the pair from revisiting the 2011/2012 lows near 117.30.
At the moment, I see no reason for the fourteen-month downtrend to stop anytime soon, especially considering the recent breakdown. There’s more justification for an increase in selling pressure than the alternative.
In summary, I’ll be watching for a retest of the 129.60 area as new resistance. Such a move would help to “reset” things after last week’s volatility and also provide an opportunity to secure a favorable risk to reward ratio. There’s always the chance that a retest won’t materialize in which case my attention will turn to the 125.50 handle.
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