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GBPJPY Likely to Mean Revert Before Next Leg Lower

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Last Tuesday we discussed how the GBPJPY was under pressure following a break of key support. The 143.00 area is the intersection of a critical horizontal level and a trend line that extends from the 2016 low.

A look at the bigger picture shows a wedge pattern that has been developing since late last year. I first commented on this structure on August 8th.

Just 72 hours after breaking the 143.00 support level on August 10th, buyers retested the area as new resistance. As you can see in the chart below, the August 15th session carved a bearish rejection candle, suggesting an influx of offers in the area.

Last week closed at a level I mentioned in that August 15th commentary. While 138.60 is the most obvious support level, the 140.50 handle has played a significant role throughout 2017. It’s no coincidence that last Friday’s session closed at 140.52.

I still favor the downside here, but shorting the pair at current levels could put you on the wrong side of the market, at least momentarily. Sellers appear to be a bit overstretched at current levels given that the 10 and 20 EMAs are more than 200 pips above today’s price.

Even the most bearish of markets will mean revert at some point. With that in mind, a better approach might be to wait for a move into the area between 141.50 and 142.00 before considering a selling opportunity. Just be sure not to sacrifice a favorable risk to reward if you choose this approach.

Another option would be to wait for a daily close (5 pm EST) below the 140.30/50 support area. Such a break would pave the way for a move toward the June low at 138.60. Either way, a reversion into the 10 and 20 EMAs seems likely following last week’s selloff.

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GBPJPY mean reversion

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6 comments
Costa V says

Hello Justin
On this post RE the GBPJPY please can you let me know how much relevance if any the fact that the pair is over sold will have to your short analysis?
Thank you

Reply
    Justin Bennett says

    Hi Costa, I titled the post the way I did because sellers have gotten themselves a bit overstretched here. I also mentioned it in the following paragraph.

    “I still favor the downside here, but shorting the pair at current levels could put you on the wrong side of the market, at least momentarily. Sellers appear to be a bit overstretched at current levels given that the 10 and 20 EMAs are more than 200 pips above today’s price.”

    Reply
Darius says

we are at next resistance. Now if it bounces back to 140.500 maybe we can sell to have a pyramide?

Reply
    Darius says

    Writing at august 24, too there are not times near comments

    Reply
Matt says

I am short from 142.50 and still in green numbers but recent bullish momentum is concerning me up to where this could go. I could already realize a 3R profit at 139.5 but the target was a bit lower at 138.65 I believe that many of you are in a similar situation, therefore would be nice to hear some thoughts. Thanks.

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eddy says

Hello Justin, is this set up still valid? Are you still bearish in this pair? Thanks for your help!

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