I’ve had my one good eye on this Guppy triangle breakdown setup for some time, and it looks like we’re getting a break-and-retest opportunity here.
Short GBP/JPY Idea
The pair found support after its break below the triangle support and is currently in correction mode. Using the handy-dandy Fib tool on the latest swing high and low shows that the 61.8% level is right around the potential support-turned-resistance area and the 144.50 minor psychological mark.
Price seems to be finding resistance at the 38.2% Fib, though, while stochastic is starting to turn down from the overbought level to signal that pound bears are ready to let the selloff resume.
As my buddy Pip Diddy mentioned in his London session recap, Brexit talks aren’t looking too good for the Brits as EU lead negotiator Barnier mentioned that trade talks were still “quite far” away and that “no decisive progress” has been made when it comes to the issues on the table. Not exactly the same vibe that U.K. Brexit Secretary David Davis gave when he said that “some concrete progress” has been made in the latest huddle!
This probably explains why pound traders shrugged off hawkish remarks from BOE MPC Member Michael Saunders who said that “A modest rise in rates would help ensure a sustainable return of inflation to target over time.”Meanwhile, the Japanese yen could regain support if risk aversion kicks back into high gear. We’ve seen this happen earlier in the week when North Korea launched a missile across the northern coast of Japan, reviving fears of a strike on U.S. soil.
I’m inclined to wait for the U.S. NFP report to be released first before taking any long yen positions because the Japanese currency tends to be sensitive to dollar demand. Positive expectations are in play and upbeat results could be bullish for the U.S. currency, which might then sap up yen gains and allow GBP/JPY to pull up higher.
I’ll set my orders next week and I’m looking to place my stop past the longer-term triangle resistance and aim for half the size of the triangle chart pattern, which is a couple of thousand pips. Here’s what I have in mind:
Short GBP/JPY at 144.50, stop loss at 148.25, profit target at 134.50 for a 2.67-to-1 R:R. I’ll be ready to trail my stop to entry once price tests the swing low. Care to share your thoughts on this play?
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