GBPJPY Ascending Triangle (May 19, 2016)

Price made a bounce off support around 155.50 earlier on and appears poised to test the triangle resistance.

GBPJPY has formed higher lows and found resistance at the 162.00 major psychological level, creating an ascending triangle pattern on its 4-hour time frame. Price made a bounce off support around 155.50 earlier on and appears poised to test the triangle resistance.

The 100 SMA is above the 200 SMA so the path of least resistance is to the upside. However, stochastic is already indicating overbought conditions so buyers might need to take a break soon. Similarly RSI is in the overbought area and is turning lower, suggesting that sellers might be ready to take control.

If so, GBPJPY could head back to the triangle support around the 156.00 major psychological level this time. This is also near the moving averages, which might hold as dynamic support levels.

Earlier in the week the UK printed mixed economic data, as the CPI readings fell short of expectations while the jobs report surprised to the upside. Headline CPI fell from 0.5% to 0.3% while the core CPI dropped from 1.5% to 1.2%. Meanwhile, the April claimant count showed a 2.4K drop in joblessness instead of the estimated 4K gain. The average earnings index climbed back to 2.0% instead of falling from 1.8% to 1.7%.

In addition, opinion polls showing a slightly larger lead in favor of staying in the EU are keeping the pound supported, especially after central bankers have highlighted the risks that might stem from a Brexit. 

Data from Japan has been mostly stronger than expected so far, as the GDP reading beat expectations with 0.4% growth and the industrial production report revised to show a stronger 3.8% increase. Core machinery orders also beat expectations with a 5.5% gain instead of the estimated 1.9% drop.

By Kate Curtis from Trader's Way