Technical Sentiment: Bullish
- Yen was sold-off across the board on a relatively quiet day;
- Second Estimate GDP increase remained unrevised at 0.8%;
- GBP/JPY remained stuck between 171.20 and 171.85 as buyers ran into resistance.
Cable inched higher against the JPY on Thursday, at a slower pace than the huge bullish rejection from the 169.80 levels. U.K. GDP estimates remained the same, indicating 0.8% growth between Q4 2013 and Q1 2014; yet the remarkable first quarter investment growth enthusiasm was dampened when Public Sector Net Borrowing increased almost three times than the forecast. Traders are now looking up to the upper half of the main range, with resistance at 173.50.
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Although the long term triangle formation has been invalidated for several weeks, GBP/JPY still manages to cling on to the good old 169.5-173.5 range. Fibonacci traders may have noticed how on Wednesday the pair bounced off of a confluence formed by two old retracement lines: 38.2% from the low of 163.86 to the high at 173.56, respectively 61.8% between 167.75 and 173.12 (or 173.43, the difference is negligible).
On Thursday the daily range was small as the bullish rejection finally ran into the resistance confluence which now rules the middle of the main range. The 100 and 200 Simple Moving Averages on the 4H time frame, coupled with a resistance trendline based on May’s Lower Highs and 61.8% Fibonacci Retracement are all situated between 171.60 and 172.05.
A rally above 172.05 will threaten to invalidate this month’s bearish tendency, opening the way higher towards 173.50. If such a bullish break happens, 171.85 and 171.24 will become the support levels.
If GBP/JPY remains stuck below 172.05 this month’s configuration of Lower Highs and Lower Lows remains valid. Another bearish wave could still be in play, albeit downside targets should be limited above 170.00, as traders should be consistent and adapt to the range pattern and the ensuing market personality.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets