Just two days ago we looked at the multi-month wedge pattern on the GBPJPY. Recent strength from the Japanese yen has triggered a selloff across the yen pairs, including the AUDJPY and NZDJPY as mentioned last week.
Wednesday’s bullish pin bar on the GBPJPY was a bull trap. It’s an excellent example of why having a bias is so important. As mentioned in yesterday’s EURJPY commentary, I’m still looking for opportunities to buy yen strength, so I chose to pass on Wednesday’s pin bar.
Thursday’s close below the confluence of support at 142.80 has broken the nine-month wedge pattern. It also exposes the next key support at 138.60. This is the June swing low as well as the September swing high from last year.
However, one thing to keep in mind here is the 250 pips between the current price and the mean as measured by the 10 and 20 EMAs. Although we could see the pair drop lower without a retracement, the overextension signals that a rotation back to 142.80 next week is likely.
With this in mind, I’m going to stay on the sideline for now. I already have yen exposure via the AUDJPY, although it looks like my take profit at 85.80 was just hit. But that aside, the overextension here calls for some patience before considering a short opportunity.
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