GBPJPY made a significant break yesterday, closing below the key 185.00 handle by an impressive 230 pips. This level can be seen acting as resistance in February and more recently acted as support for the pair on July 8th and 9th.
From here traders can begin watching for a retest of this area as new resistance. If the pair is unable to climb that high, a break below 181.60 could prove just as compelling for a short trade as yesterday’s breakout at 185.00.
Weakness in GBPJPY is in line with the bearish sentiment that has taken hold of the yen crosses as concerns over China continue to mount. As an added vote of confidence for GBPJPY weakness, GBPUSD also made a significant break below support at 1.5355 during yesterday’s session, forming a bearish rejection bar in the process (see the chart to the right).
As for GBPJPY, the recent strength in the Japanese yen will exacerbate any weakness from the British pound, which was clearly the case during yesterday’s session when the pair fell 350 pips.
If the market is in agreement with the idea of a double top between June and August, the pair could revisit the 2015 low at 174.85 in the coming weeks based on the 1,000 pip measured move.
Summary: Watch for a selling opportunity on a retest of 185.00 as new resistance. Key support comes in at 181.60, 179.00 and 174.85. Alternatively, a daily close back above 185.00 would negate the bearish bias and turn our attention higher.