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With Brexit uncertainty still in play and broad risk sentiment still in the negative, this box setup on Guppy is one to watch for potential short-term pips.

Before moving on, ICYMI, today’s Daily London Session Watchlist looked at an opportunity forming on NZD/USD as risk sentiment will likely remain the main driver in FX, so be sure to check that out to see if there is still a potential play!

Equity Markets Bond Yields Commodities & Crypto
DAX: 12640.73 -0.02%
FTSE: 5840.71 -0.99%
S&P 500: 3245.97 +0.28%
DJIA: 26790.49 +0.10%
US 10-YR: 0.668% -0.008
Bund 10-YR: -0.513% -0.011
UK 10-YR: 0.21% -0.01
JPN 10-YR: +0.21% -0.01
Oil: 40.07 +0.35%
Gold: 1864.50 -0.20%
Bitcoin: 10402.46 +1.86%
Ethereum: 338.02 +5.90%

Fresh Market Headlines & Economic Data:

US Weekly jobless claims rise unexpectedly, total 870,000

ECB Hands Banks $203 Billion in Cheap Cash to Boost Lending

Swiss National Bank turns less gloomy, keeps policy on hold

German Ifo business climate index rises in September

Gold slides to two-month low as Dollar gains embolden bears

Oil steadies as frail demand outlook tempers U.S. stock drawdown

German Ifo business climate index rises in September

Belgium Business confidence picks up again slightly in September

UK Headline retail sales growth fastest in 18 months, but some sub-sectors continue to struggle

Rishi Sunak unveils emergency jobs scheme for the UK

EU/UK trade deal will fail if divorce treaty threatened, Ireland says

Upcoming Potential Catalysts on the Economic Calendar

Fed Evans speech at 5:00 pm GMT
Fed Williams speech at 6:00 pm GMT
U.K. Consumer confidence at 11:01 pm GMT
Japan Services PPI at 11:50 pm GMT

What to Watch: GBP/JPY

GBP/JPY 1-Hour Forex Chart
GBP/JPY 1-Hour Forex Chart

Today, we’re checking out this simple technical setup on GBP/JPY, which lines up with the bigger fundamental themes of risk aversion (rising coronavirus cases/potential lockdowns) and issues within the U.K. (rising no-deal Brexit fears, new lockdown measures).

On the one hour chart above, we can see the pair is in a stair-step move lower, currently consolidating between 133.00 – 134.500, after breaking below the previous consolidation area between 135.50 – 136.50.

The market is now retesting the top of the current range around 134.50, and with Stochastic signaling short-term overbought conditions, technical traders could start taking nibbler shorts in this area.

Fundamental traders could be taking shots as well on the pullback as we don’t have any scheduled major events ahead for the rest of the session to potentially shift the overall bias on the currency pair.

So, the odds are in favor of the bears at the moment, but for the bulls we could see a potential setup if broad risk sentiment shifts positive (e.g., positive COVID-19 vaccine/treatment news, fresh stimulus news, etc.) and or progress is made towards credible Brexit deal.

If this is the case, short-term JPY selling could come back, and if we see a sustained break in GBP/JPY above the 134.50 minor psychological area, then it’s time to consider a long position.

With a strong enough catalyst and a daily ATR of around 135 pips, a move up to the middle of the previous consolidation area (around 136.00) is not out of the question within a session or two.