We’ve got strong momentum on GBP/JPY on the session, thanks to Brexit headlines and broad risk sentiment continuing its negative run. With the pair testing a strong support area, will the bulls jump in or will the bears find a way to keep the trend going?
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What to Watch: GBP/JPY
On the one-hour chart above of Guppy, we can see it’s been a really rough ride for the bulls over the last week as sellers took over big time just under the 143.00 handle. Brexit uncertainty last week was the main driver for the turn in sentiment, and it looks like that theme hasn’t changed this week.
Fresh news from the Brexit front today increased fears of a no-deal Brexit, prompting a near drop on Sterling pairs through the London and U.S. trading session. This has lead GBP/JPY to the next major support area around the 138.50 – 139.00 area, where the pair seems to be stabilizing at the moment. So will it break lower or bounce higher?
Well, the U.S. tech sector fallout doesn’t seem to have a bottom at the moment yet, driving broad risk sentiment towards negative further, which means this downtrend still has legs with no major economic updates on the calendar ahead. The odds of a continued risk-off vibe goes up if the upcoming mid-tier economic updates disappoint.
If the pair can sustain a break below the 138.00 handle, then momentum traders may pile into the pair once again to go for the next support area, possibly around the 136.50 area.
For those bullish, we’ll need to see a positive risk sentiment catalyst (e.g., better-than-expected business sentiment updates, positive updates on COVID-19 vaccines/treatments, the U.S. government closer to a new stimulus bill) before traders are likely to jump into a solid swing move higher. There could be profit taking at these levels for a small bounce, but without a catalyst, it’s likely to be short-lived.