Technical Sentiment: Neutral
Key Takeaways
- The long term triangle formation was breached towards the upside yet price quickly fell back down;
- GBP/JPY cleared stop losses below 171.90, major support confluence lies at 171.24;
- British Services PMI expected to print a small increase on Tuesday;
Last week’s rally ended on a sour note on Friday, when GBP/JPY ran into a lot of selling pressure just ahead of March’s top at 173.56. The day ended as a bearish engulfing bar and today the price action pattern was confirmed as the sell-off continued throughout the Asian and European session. The pair is expected to consolidate between 171.75 and 172.80 ahead of the British Services PMI.
Technical Analysis
GBP/JPY is currently trading above 172.00 after testing the 4H 100 Simple Moving Average. Although volume is thin and the pair has invalidated April 30th Low of 171.92, April 28th Low of 171.24 remains the most recent higher low on the Daily timeframe and the actual key support level. The 200 Simple Moving Average on 4H, 38.2% Fibonacci retracement from 167.75 to 173.44 and the triangle support trendline are located in this area.
If the Services PMI will print an increase to 57.9 or above expectations, GBP/JPY will put the resistance levels to the test, starting with 172.76 and ending with 173.56. The 173.56 resistance is unlikely to break before Thursday, as the markets will wait for BOE’s Official Bank Rate announcement. In case of a rally above the previous tops, 174.82 will immediately become the main attraction point.
Towards the downside, 171.24 should be watched for either a bounce or a strong break. A strong break below 171.24 will end the bullish higher lows configuration and open the way towards 170.00 (61.8% Fibonacci retracement from 167.75 to 173.43). This scenario has the most potential to increase volatility, as long traders will be shaken out of their positions and forced to reverse. On the other hand, a rejection has less potential as GBP/JPY will further consolidate in this choppy region.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
