GBP crosses and their close-proximity to trendlines have been a common theme of late, with GBP/JPY now stepping up to the plate for a showdown with a potentially pivotal level.
Since around May 2017 GBP/JPY has trended higher, although a quick look at the weekly chart raises the potential for this to be a corrective move against a dominant, bearish trend. Bearish momentum between the June 2015 high and September 2016 low was strong, and far outpaces the trajectory of the current bullish ‘rally’.
Furthermore, the 153.84 high presented an elongated, bearish inside candle and bearish pinbar, which itself went on to form a lower high. Taking the above all into account, we see potential for the bullish trendline from the April low to be converted to a broken retracement line in due course.
The daily chart is where it really starts to get interesting. Not only have we seen a strong leg of bearish momentum since the 152.71 high, but preceding it was a lower high and break of a trendline. Is history about to repeat in fractal form?
Currently residing above 147 support, price action is showing signs of compression following the decline from the 152.71 high (and mild attempt to break the lower Keltner band). As the market has now paused for breath, we’d consider a break below 147 as this could also invalidate the bullish trendline seen on the weekly chart.
Due to the shallow retracements, the potential to short is not necessarily over if we see it bounce slightly higher. Although a clear return of bullish momentum would keep it out of reach for bearish setups. But, as we’re looking at the long-term weekly structure this is a cross to keep in mind for if it finally breaks the ‘corrective’ trendline.
Keep in mind however that the BOE meeting is tomorrow. A slew of weak data has all but killed hiking expectations, but that may not make the meeting any less volatile if the wrong words are said relative to market expectations.