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GBPJPY Reversal Pattern (Jan 04, 2017)

GBPJPY has previously been on an uptrend but it looks like bulls are tired from the climb. 

A head and shoulders pattern can be seen forming on its 4-hour time frame, although the right shoulder is still being completed. Price seems to have found resistance at an area of interest around the 145.00 major psychological level and could be due to test the neckline at 142.50-143.00. 

The 100 SMA is above the 200 SMA on this time frame, though, so the path of least resistance is still to the upside. However, the gap between the moving averages seems to be narrowing so a downward crossover could be due, possibly drawing sellers to the mix. 

Stochastic is heading south so price could follow suit as sellers take control of price action while buyers are taking a break. Once the oscillator hits the oversold region, bulls could get back in the game and trigger a bounce off the neckline support. If that area breaks, price could fall by around 500 pips or the same height as the chart formation. 

Economic data from Japan was slightly stronger than expected, as the final manufacturing PMI was upgraded from 51.9 to 52.4 instead of being unchanged as expected. Japanese banks are also set to reopen today so higher liquidity could come into play. 

As for the UK, the manufacturing PMI also beat expectations by rising from 53.6 to 56.1, higher than the consensus at 53.3. This reflects a stronger pace of industry growth instead of the estimated slowdown. 

GBPJPY

Up ahead, UK construction PMI is due and a dip from 52.8 to 52.6 is expected. A stronger than expected read could result to a few gains for the pound but traders are likely paying closer attention to the services PMI due on Thursday. The FOMC minutes out today could also have an impact on yen pairs' movement. 

By Kate Curtis from Trader's Way

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