So far this week GBP/JPY has been range bound between 171.60 and 170.00. The resistance level goes back to February, and this week we have seen multiple rejections off of it. Price action wise, the most notable rejection happened on Thursday, as the daily bar completely engulfed the previous, rejected off the resistance and closed lower.
This bearish price action pattern will put pressure on the support area today, even if low impact reports from BOJ slightly disappointing today. Japan Corporate Goods Price Index fell 0.1%, to 1.7% compared, while it was expected that it would remain at 1.8%; Japan Money Stock was 3.5%, 0.4% lower than the forecast and 0.5% lower than the previous month.
Besides being a large round number, the psychological 170.00 handle also shows a huge support confluence from a technical standpoint:
1. 38.2% Fibonacci Retracement on the 163.86 – 173.56 upswing, located at 169.85;
2. 61.8% Fibonacci Retracement between 167.75 – 173.12 upswing, located at 169.80;
3. 50-Day Simple Moving Average at 169.91;
4. 100-Day Simple Moving Average at 169.76;
5. Triangle support trendline at 170.00;
6. Previous resistance levels from March located at 169.65.
Thursday’s Bearish Engulfing price action pattern has already been activated, yet the large triangle formation break will be confirmed only if price closes below 169.80, preferably even below 169.60. If a breakout does not occur, a bullish pullback towards the 171.60 resistance remains in play, and the range personality will linger for a few more trading sessions.
Resistance levels: 171.58; 173.12; 173.56; 174.81.
Support levels: 169.60-170.00 area; 168.80; 167.57-167.75 area.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
