GBP/JPY Trading at a Falling Trendline

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GBP/JPY had a choppy downtrend in May, falling from 173.46 to 169.53 as you can see in the 4H chart.

GBP/JPY 4H Chart
gbpjpy 06032014 4h chart

Since finding support at 159.53, traders started this week buying up pound-yen to just above 171.50 before stalling. As we start the 6/3 Asian session, GBP/JPY is testing a falling trendline that comes down from the 173.46 May-high.

If the market can hold above 171 and push above the 171.95-172 high from last week, then we would have a bullish signal that opens up the 172.75 and 173.46 highs.

However, failure to push above 172 with a dip below 171 keeps May’s bearish trend in place, at least with focus to the 169.54 low.

The daily chart shows that the GBP/JPY has been trading sideways through 2014. From a technical perspective there is bullish bias because of the prevailing uptrend. The RSI has been holding above 40, and reflects the fact that bullish momentum is maintained.

GBP/JPY Daily Chart
gbjpy daily chart 6/3

The falling trendline in the 4H chart is a flag pattern resistance from the daily time-frame. A break above 172 has a more significant bullish implication then a dip below 171.

A break below 169.50 however does open up the March lows around 168.00. We should keep our bearish outlook more conservative. While the upside seems limited in the short-term as well, I think if you abide by the “follow the trend” rule of thumb, you take more chances with the bullish outlook since there hasn’t been any strong technical evidence to suggest the bullish trend has ended.

To contact the reporter of this story, email Fan Yang at fan@forexminute.com
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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.