*Live financial market analysis of the GBPJPY FX currency pair*
Welcome back to the blog, I hope you all had a wonderful weekend. I apologise for the lack of content last week, I went away for a last minute “staycation” for some much needed rest and relaxation and did not get time to write a third blog post.
This week I have 3 blog posts lined up including todays FX market analysis, the weekly chart pack and a trade breakdown/education post on Friday. Let’s get right in to it and start by looking at the higher timeframe technical analysis for the GBPJPY FX currency pair.
GBPJPY higher timeframe charts.
Through the last 4 years since the Brexit vote and subsequent sell off in 2016, I would say GBPJPY has been trading in a range. More recently, in the last 2 years, GBPJPY has been forming a wedge consolidation pattern with price starting to squeeze tighter and this is where a bigger trade move might occur.
However, for the purposes of the this blog post I am just using the weekly timeframe chart to make sure I am not entering any trade positions that is obvious against a higher timeframe bias. The weekly 50EMA is still trading below the 200EMA (bearish alignment) and I think that as long as the upper bearish trendline is respected and holds strong, that selling should produce good intraday trades.
The daily timeframe chart above shows the last 12 months of price action. The upper bearish trendline you can see is the same bearish trendline that was shown on the weekly timeframe chart and as you can see, it has produced multiple clean bounces in recent months.
As it stands, I think the trendline is going to hold strong and the lower high formed through the past 2 months of trading is a sign that price could start to roll over to the downside from here. A no deal Brexit would assist this in my opinion and technical and fundamentals so tend to go hand in hand.
There have also been multiple bearish daily candle closures in the past few weeks and last weeks GBP sell-off on Friday mean that the previous weekly candle closed as a large bearish engulfing candlestick. A strong bearish signal often used by technical analysts and traders to signify seller momentum.
Intraday technical analysis.
I have used the 1 hour chart to show you my intraday trade set up on GBPJPY and I think that the current price actions presents a good short trade opportunity. I have listed the main parts of my analysis below so you can easily read them all.
- Weekly bearish trendline bounce with bearish engulfing candle closure.
- Weekly 50EMA below the 200EMA (bearish alignment).
- Daily price action forming a potential lower high.
- 1hr bearish trend with lower highs and a lower low formed.
- 1hr 50EMA now below the 200EMA (bearish alignment).
- Weekend price gap up yet to be fulfilled.
The large gap up in price that occurred through this weekend has produced and excellent way for short traders to now quickly sell into the bearish trend at a great price. Although it would have caused a lot of pain for traders entering positions late in to Fridays sell-off. The gap is yet to be fulfilled (closed) and many traders and analysts believe this should normally always occur as a sign of markets being efficient.
I have shorted GBPJPY at 139.00 with a conservative stop loss above the previous price highs and multiple price targets distributed at 137.00 (previous lower low) and 135.800 which would be a new lower low at the -0.27 fibonacci extension level. If that price level is breached to the downside then my next target would be the price support zone at 135.00. These are all marked on the chart above.
This trade is an intraday trade, and estimate that it will take anywhere between a few days and maybe 2 weeks for the trade cycle to complete. That being that price either makes it’s way down to the target profit levels as shown on the chart above, or the intraday bearish trend reverses and price rises.
Financial market fundamentals.
GBP and Euro currencies and stock indices are very headline driven at the moment thanks to the increased urgency surrounding Brexit. Yes, that is correct, we are now heading in to a 5th year since the U.K voted to leave the EU and we are still yet to leave…
The previous deadline for deal was yesterday but this has now been extended, once again, until the 31st December 2020 in an attempt to avoid a no-deal exit. Boris Johnson has stated that the no-deal Brexit is still the most likely outcome but that does not mean negotiations are stopping. There are a few main points that the U.K and EU cannot agree on and these need to be resolved before a deal can take place.
Fundamentals – Brexit headline driven. GJ takes out the USD weakness as that is a case for Cable continuing to rise even with GBP weakness. Also avoids Vol of USD
I think that trading the Pound against the Yen is a better option than shorting the Pound against the US dollar which is still seeing prolonged weakness. Despite a weak pound, Cable (GBPUSD) has remained resilient because of the USD weakness and this doesn’t help traders shorting the Pound using this currency pair.
Trading GBPJPY will also help to remove USD volatility from the equation which is currently higher than Yen volatility in relation to the near term volatility (one month) vs longer term average daily volatility (five year). The table below shows this.
As you can see, the current one month average daily volatility of the 7 FX majors is lower than their 5 year averages which is a good sign for intraday traders wanting to avoid price spikes. Going one step further, if you compare the Yen and USD one month volatility as a percentage of their respective long term volatility (one month vs five year) then Yen volatility is a little bit lower than USD.
- JPY = 0.255/0.314*100 = 81.21%
- USD = 0.065/0.074*100 = 87.83%
I will continue to update you in future blog posts on the status of the GBPJPY analysis. I believe this is a very good intraday trade setup with solid reward:risk and a reasonably high chance of success. If you are wanting to look at FX volatility in more detail then make sure you check out my weekly chart pack blog posts which are published every Tuesday on this blog.
You can also track this trade live via the TradingView platform by clicking on the link below.
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All my technical analysis is done using the TradingView platform. You can get access via the link below.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.