GBPJPY indicated its intention to head further south by breaking below the head and shoulders neckline at 141.00. The chart pattern is approximately 300 pips tall so the resulting selloff could be of the same size.
The 100 SMA has crossed below the longer-term 200 SMA to confirm that the path of least resistance is to the downside. The gap between the moving averages is getting wider, which means that bearish pressure is getting stronger.
Stochastic is on the move up, though, suggesting that buyers could regain control of price action while bears book profits. If so, a pullback to the broken neckline support could offer a better opportunity to catch the drop.
Risk aversion has been favoring the Japanese yen this week as traders shy away from the US dollar, which is bogged down by domestic uncertainties. Data from Japan has shown improvements in consumer spending and sentiment, underscoring the BOJ’s upgraded growth forecasts.
In the UK, data is starting to turn a corner and suggest that the economy is starting to feel the Brexit jitters. Last week’s PMI releases were mostly weaker than expected while today’s BRC retail sales monitor showed a 0.6% decline.
UK Halifax HPI is due next and a meager 0.2% uptick in price levels is eyed, much slower than the earlier 1.7% gain. Manufacturing and industrial production numbers are due on Friday and downbeat reports could put more downside pressure on Guppy.
By Kate Curtis from Trader’s Way