We’ve pretty much got an empty calendar ahead, so today’s market news could continue to be the drivers of volatility for the latest short-term setups, including this break-and-retest pattern on GBP/JPY.
Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on USD/CAD after a Fed induced spike in USD volatility, so be sure to check that out to see if there is still a potential play!
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Fresh Market Headlines & Economic Data:
Upcoming Potential Catalysts on the Economic Calendar
Japan Inflation Rate at 11:30 pm GMT
What to Watch: GBP/JPY
As we can see above in the “Upcoming Potential Catalysts” section, we’ve got almost nada to spark fresh volatility into the forex markets.
The Japanese inflation update is a low tier event, but it may be enough to get some movement for the yen, and with the BOE meeting sparking some volatility for Sterling at the moment, GBP/JPY looks to be one of our best shots for short term moves at the moment.
On the one hour chart above of GBP/JPY, we can see the pair has been in consolidation mode over the past week, trading in a tight range between 135.50 – 136.50, less than its daily Average True Range of around 135 pips.
Then we saw a downside break on today’s session, likely a reaction to the Bank of England’s latest monetary policy statement, in which they announced that they were looking further into negative interest rates.
Well, the drop seems to be short-lived as Sterling has recovered to pre-event levels, bringing on the question of whether or not sellers will jump in to play the longer-term selling bias on Sterling?
Well, the scenario to look out for if you’re bear on the pair is bearish reversal patterns now that the consolidation area is retested, and possibly some help from the Japanese inflation update if it comes in better than the expected read of -0.4% y/y; if it comes in positive, that will likely spark a rally in the yen short-term.
For the bulls on the pair, a long position is a tough argument now with the possibility of negative rates rising in the U.K., Brexit drama, and as the COVID-19 story worsened today in the U.K. (Britain’s COVID-19 testing regime buckles with delays and capacity constraint).
But if we see a fresh catalysts that pushes GBP/JPY above the consolidation area, watch out for a break-and-retest setup around the 136.50 handle, before considering a long swing position, of short-term one depending on the catalyst.