In the last three months GBP/JPY has formed a large triangle pattern which can be best observed on the Daily timeframe, Price action from the last two weeks has confirmed the validity of the support trendline, which coincides perfectly with the 100-day Moving Average.
A bullish engulfing pattern formed as yesterday’s candle tested the support once more, yet this time the pair rose above the previous highs between 169.55 – 169.70. The afore mentioned resistance succesfully acted as support throughout the day. For short term traders, this pivot is the new support besides the triangle trendline.
The bullish engulfing pattern will be confirmed if GBP/JPY rises above 170.30 today. This move also puts price above the 100 and 200 Simple Moving Averages on the 4H timeframe, adding to the general idea of bullishness. Above 170.30 buyers will set their eyes on 171.34 – 171.60 area, where a confluence between 61.8% fibonacci and four recent swing highs could easily cap further gains. If that doesn’t happen, the triangle resistance is slowly heading towards 173.00 and will represent the secondary resistance.
Failure to achieve new highs will lead to pull-backs towards 170.30 and of course the trendline resistance around 168.80.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets