Weekly Trade Idea (01/02/16) – GBPJPY on the rebound

GBPJPY is looking ripe for a reversal following the weekly candlestick pattern near the 170 – 165 price level. The Yen weakened last week on the BoJ’s surprise policy decision to cut interest rates to the negative. The British Pound which has been trading weak since the past month and a half is looking to retrace some of the declines. The week ahead will see market influencing economic releases, starting with China’s PMI numbers, which if disappoints could see the Yen strengthen yet again, pushing GBPJPY down to 170 levels. In the event of an upside surprise, GBPJPY remains capped near the weekly trend line noted below keeping price action ranging sideways.

From the UK, this week marks PMI numbers and BoE monetary policy decisions. Of these, the PMI’s from the UK are likely to influence GBP more than anything else. From the BoE perspective, rates are expected to stay unchanged and not much is expected from the BoE in either case.

GBPJPY – Technical Overview

After posting strong declines for over six weeks, GBPJPY posted a reversal by closing with a second week of gains off the 170 – 165 support level. With the weekly trend line being broken, a cautious approach is required as prices could resume their downtrend quick enough. To the upside, 176 marks the immediate minor resistance level which could be tested, but a break above 176 could open a test to 180 which was a previous support level that was tested initially during the week of 30th August 2015. A retest back to 180 to establish resistance is therefore the most valid price action move to the upside.

GBPJPY - Weekly Chart market overview
GBPJPY – Weekly Chart market overview

On the daily chart, price action saw a rejection near the weekly trend line after testing it briefly. A move to the downside to establish support is required if price action needs to push higher. Immediate support at 170 is the most ideal level for a move higher aiming for 176 followed by 180.

GBPJPY Daily Chart - Potential levels
GBPJPY Daily Chart – Potential levels

Moving to the 4-hour chart time frame to time the entry, we can see a median line price rejection near the weekly trend line. Another move higher is expected and the cue is for price to post a lower high below 174.1 high. This would validate a pullback to the bullish move. Support at 170 is most likely level for prices to pull back to, while a daily close below 167 could invalidate the bias.

GBPJPY H4 Chart - Trade Timing
GBPJPY H4 Chart – Trade Timing

GBPJPY – Recommended Trade

Go long at 170, with stops at 167 (on a daily close) targeting 176 and 180. Move stops to 170.5 when first target of 176 is reached.

GBPJPY Trade Set up
GBPJPY Trade Set up

Risk: 30, Reward 1: 60, Reward 2: 10