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Guppy seems to be bouncing off its long-term ceiling once more, and I’m seeing a small reversal pattern that might convince me to short. But first, I think I’ll wait and see how today’s top-tier events pan out.

GBP/JPY Trade Idea

Remember that ascending triangle formation I’ve had my eye on in my Weekly FX Crosses Watch? It looks like the resistance is holding like a boss and GBP/JPY might be on its way back to testing support around the 142.00-143.00 area.

Stochastic is also heading down on this time frame, which means that pound bears are on top of their game.

GBP/JPY Daily Forex Chart
GBP/JPY Daily Forex Chart

Zooming in to the 1-hour chart, I’ve spotted a sketchy double top pattern that also signals a potential drop. The pair has yet to break below the neckline around the 145.50 minor psychological level but if it does, price could fall by around 225 pips or the same height as the chart formation.

GBP/JPY 1-hour Forex Chart
GBP/JPY 1-hour Forex Chart

I’m bearish on the pound mostly because of downbeat U.K. CPI released earlier this week, which basically doused BOE rate hike expectations. The spotlight is back on Brexit talks again this week as another round of discussions just took place, and market watchers are also waiting to find out how the June retail sales report would turn out.

You see, British consumers have been feeling the pinch from rising price levels and weak wage growth. This has taken its toll on consumer spending, which dropped 1.2% in May and could be poised to print another negative reading for last month. If so, speculations of weaker GDP growth could further dampen BOE tightening hopes.

A weaker than expected U.K. retail sales reading could give pound bears enough energy to bust through the double top neckline and push the pair down to the long-term triangle bottom. However, I’m also wary of the upcoming BOJ statement that might spur additional volatility for yen pairs.

A few improvements in Japan’s recent set of economic reports could be enough to convince BOJ policymakers to sit on their hands for the time being, but there’s no denying that any dovish hints or jawboning could spark another huge yen selloff. Because of that, I’ll refrain from setting any orders until after the presser, but here’s my plan:

Short GBP/JPY at 145.25, stop loss at 148.25, profit target at 142.25 for a simple 1:1 play. I’ll be risking 0.5% of my account on this setup, and I’ll keep y’all posted if I’m able to jump in!

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