GBPJPY Potential Reversal (Jan 5, 2015)

The previous uptrend could soon be reversed if price breaks below the neckline of the pattern around the 180.50 minor psychological support zone.

In that case, GBPJPY could drop by close to 1000 pips, which is around the same height of the chart pattern. For now, stochastic is suggesting that bulls are in control and that a pullback might happen before GBPJPY resumes its drop.

If the 180.00 area holds as long-term support though, GBJPY could recover back to the previous highs near the 190.00 major psychological resistance and form a triple top chart pattern. This is still a valid reversal signal but it might also be indicative of ranging market movement.

If risk aversion persists, the path of least resistance could be to the downside. Weak economic figures from Japan appear to be supporting its currency while the central bank and government refrain from taking action so far. However, announcing further easing could lead to yen weakness and potential gains past the previous highs.

As for the UK, data has been mixed recently, although traders are still focused on speculations that the BOE isn’t likely to tighten monetary policy this year. The monetary policy committee meeting minutes are up for release this week and might provide more directional clues for pound pairs.

A short order around 180.00 or lower could be enough to catch the potential drop and avoid a fake out. If you’re bullish on the pair, you could wait for a test of the support area and aim for the previous highs while trailing the stop to protect profits along the way.

By Kate Curtis from Trader's Way