Technical Sentiment: Neutral
Key Takeaways
- GBP/JPY found buyers around 171.21 support;
- May downtrend configuration at risk above 172.32 and 172.96;
- A break-out outside the consolidation area is expected soon.
GBP/JPY bears put on a show at the end of last week, following BOE’s decision to keep interest rates unchanged at 0.50%. The pair went on to test April 28th Low at 171.2 before bouncing back up, which of course means the long term uptrend remains valid. On Wednesday cable will have a heavy news day with Unemployment Rate, Claimant Count Change and Inflation Report. Until then traders will rely only on a couple of technical levels within the consolidation area to cap it’s movements in both directions.
Technical Analysis
GBP/JPY will remain within the current 200-pip consolidation area for a couple more days. The main support confluence is 171.24, formed around April 28th Low of 171.24 which coincides with 38.2% Fibonacci Retracement from 167.75 to 173.43.
The pair is currently trading around 172.20, facing an immediate resistance hurdle at 173.30/40 in the form of a Fibonacci confluence backed up by the 50 and 100 Simple Moving Averages on the 4H time frame. A break above this first resistance will expose 173.00 and the tops formed around 173.44/54. Such a move will invalidate this month’s Lower Low – Lower High configuration, favoring the return of the long term uptrend and a continuation above 173.50.
On the other hand, a rejection from the 172.30 resistance line or starting from the 173 area will lead to yet another test of the 171.24 support. If this fails to hold, the sell-off will accelerate towards 170.00 and 169.50, also putting the long term uptrend at risk due to the invalidation of the Higher Lows formations.
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Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
