By Russell Glaser – The pair has been consolidating over the past 6 weeks while forming a chart pattern that looks to break to the downside in a continuation with the long term trend.
Following the sharp deprecation in the price of the pair during the month of May, the GBP/JPY has consolidated its losses and has formed an ascending triangle pattern.
A halt to the trend can be verified by the flat 20-day exponential moving average. Also a significant drop off in volatility is shown by the decrease in the Average True Range (14). A tightening of the daily chart’s Bollinger Bands confirms the reduced volatility in the pair.
Because the long term trend is to the downside, it is assumed that a breakout will be in this direction. However, traders are not limited to one direction in this trade setup. By placing a stop on the inside of the triangle to guard against a false breakout, losses can be minimized should the breakout fail to materialize. Therefore, a trade setup can be in either direction.
A breakout to the upside would target the resistance level at 138.25, followed by the significant resistance line of 139.25 and a long term target at 140.50, the 38.2% Fibonacci retracement level from the downward trend that began in August of 2009.
If the long term trend continues and the pair breaks out of the triangle to the downside, the first target would be the support at 131.30, followed by the bottom of the downward trend at 126.75.
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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