Technical Sentiment: Neutral

Key Takeaways

• BBA Mortgage Approvals declined to 42.8k vs forecast 44.2k, market reactions muted;
• Resistance rejection clouds bullish perspective for now;
• Temporary weakness will target 171.60.

Since Thursday, 20^th August, daily price action for GBP/JPY began drifting without a sense of direction. A large decrease in volume coupled with uncertainty regarding the long term direction made it impossible for buyers to rally above 172.60 on Monday. In the short term the pair is exposed to a correction – depending how deep this correction runs, we can begin to pursue a few trading opportunities.

Technical Analysis

Intraday traders will stick to their bullish bias while price remains above 171.60. Long term trend-traders remain bearish below 172.60, based on a perfectly defined configuration of lower swing highs. Right now, however, the truth lies somewhere in the middle, waiting for the proper trigger before it becomes the dominant view for both parties. GBP/JPY is currently trading around 172.13, boxed-in between a major resistance cluster and an equally solid support. This could lead to choppy price action in the coming days, making it difficult to choose the correct side at all times.

Current resistance lies at 172.60 and we maintain a long term bearish bias while it remains intact. Previous Lower Highs, a price pivot area and the 200 Simple Moving Average on 4H timeframe form a perfect cluster in this area. Simply put, if price rallies and stabilizes above 172.60, then we will immediately switch to long positions and consider a trend reversal, with targets well above 174.

Immediate targets for intraday short traders are located between 171.60 and 171.80. If price bounces higher in this area, a re-test of the resistance is likely. On the other hand, a break below this zone will escalate the sell-off, exposing the larger support cluster at 170.65.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets