GBP/JPY hits the top of our forex watchlist this week as the pair returns to a familiar area of resistance. Is it time for an upside break or will the bears quickly take back control and send the pair lower this week?
Resistance Reversal or Upside Break in GBP/JPY?
Despite a round of negative economic/business sentiment updates from the U.K. last week, Guppy went on a tear higher after retesting a major support area around the 149.00 – 150.00 major psychological areas. It’s likely that traders weren’t only riding yen weakness as broad risk sentiment shifted positive after an ebb in China Evergrande debt and Fed Taper fears, but the bullishness may have come from traders focusing on the possibility of a rate hike in 2021 from the Bank of England.
With traders now in a new week lacking major scheduled catalysts ahead, will last week’s momentum continue. Well, so far it appears so as traders shrug off news of a petrol shortage in the U.K. and the growing possibility of an energy crisis if a cold winter spikes up demand. And we just heard from Bank of England Governor Andrew Bailey this morning, reinforcing the rate hike option is still very much on the table, so the odds that Sterling may find buyers still seems good at the moment.
So as long as broad risk sentiment continues to lean positive this week, GBP/JPY is a pair to watch for continued gains into the next month. But with the pair now approaching a major area of resistance (falling ‘highs’ pattern intersecting with an area of major previous interest around 152.00 – 153.00) it may get a bit choppy this week.
For you long biased players on GBP/JPY, setups to watch out for before considering a long are a strong break of that previous resistance area/falling trendline, and/or a pullback down to the 150.00 – 151.00 and seeing bullish reversal candles there. The upside break setup could draw in longer-term technical traders who may see an upside break of the current consolidation as new leg higher in the longer-term trend higher going all the way back to the pandemic lows around 124.00 – 125.00.
For you short biased players of GBP/JPY, a short-term short around current levels is a play to consider if you think we’ll get a bearish catalyst for broad risk sentiment that could draw in yen bulls. That’s a low probability scenario at the moment, but if we do get more disappointing data from around the world this week (most notably from this week’s business and consumer sentiment updates), that could have a net negative affect on risk sentiment by the end of the week.
What do you all think? Is an upside break ahead on GBP/JPY or will the bears take control one more time at the falling trendline? Let me know in the comments section below!
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