GBPJPY formed a double top pattern on its 1-hour forex chart, hinting that a potential forex reversal is in the cards. The pair is still a hundred pips away from testing the neckline support at the 184.00 levels.
A break below the neckline could send GBPJPY lower by as much as 200 pips, which is the same height as the chart pattern. Stochastic is heading south and indicating a pickup in selling momentum anyway, which suggests that a test of the neckline is possible.
Potential Forex Reversal
A bounce off 184.00 could lead to the formation of another top at the 186.00 handle, which could either lead to range-bound movement or a triple top pattern, which is still a valid reversal formation. Both the BOE and BOJ are holding dovish biases, as the former shifted to a more cautious stance while the latter actually implemented additional easing recently.
Event risks for this forex reversal setup today include the release of the U.K. second GDP estimate, which could see no change at 0.7%. There are no major reports up for release from Japan, leaving yen pairs sensitive to risk sentiment as well.
Upward revisions in the UK GDP could reassure traders that the economy might still stay resilient despite global headwinds. If so, GBPJPY might still have a chance at breaking past the previous highs at 186.00 and invalidating the potential forex reversal signal.
Bear in mind that BOJ officials have expressed openness to easing further, with Governor Kuroda saying that the latest round of monetary stimulus is geared at warding off deflation. Japanese growth could still get weighed down in the coming months, especially if the government decides to push through with the sales tax hike sometime next year.
If the forex reversal signal is confirmed, the pair could fall until the 182.00 handle or perhaps even lower, depending on the outcome of today’s reports.
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