GBPJPY recently broke below a head and shoulders reversal formation, signaling that a long-term downtrend is in the cards. Price seems to be pulling up from its slide, though, and applying the Fib tool on the latest swing high and low shows that the 50% retracement level coincides with the broken neckline.
A descending trend line can be drawn to connect the latest highs of price action on the 1-hour time frame. The 100 SMA has crossed below the longer-term 200 SMA to suggest that the path of least resistance is to the downside, with the short-term moving average lining up with the 50% Fib as dynamic resistance.
Stochastic is still on the move up for now so buyers might be in control of price action and allow the pullback to materialize. Once the oscillator hits the overbought region and turns lower, sellers could get back in the game and push for a drop to the swing low at 140.00 or lower.
UK economic data has been mostly stronger than expected so far this week and last week. However, traders are paying closer attention to Brexit related headlines lately, especially since PM May mentioned that they might forego access to the single market in exchange for closing the UK’s borders.
As for the yen, the Japanese currency is taking advantage of the slide in dollar demand that followed after the release of downbeat December NFP data. The weaker than expected jobs report led traders to doubt that the FOMC can be able to hike rates thrice this year, especially since the incoming Trump administration could come up with a lot of fiscal policy changes.
The BOJ has also upgraded its GDP outlook, convincing traders that they’re not likely to ramp up their stimulus efforts anytime soon. Data from Japan has been mixed, though, and the next BOJ decision is set to take place by the end of the month.
By Kate Curtis from Trader’s Way