GBP/JPY – Trading the Broken Triangle

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GBP/JPY - Trading the Broken Triangle

GBP/JPY broke below a triangle in the previous session, confirmed it with a pullback, and extended to 177.50 before stalling. In the very near-term, there appears to be some buying that is pushing up the pair back above 178.

GBP/JPY 1H Chart 3/25
gbpjpy 1h chart 3/25
(click to enlarge)

There might be some near-term bullish momentum, but let’s respect the bearish breakout. If price approaches 178.50 and stalls it would show respect to the prevailing triangle trendline resistance. We should also expect resistance here from the cluster of 200-, 100-, and 50-hour SMAs.

Bearish Targets: Holding at 178.50 would keep the pressure on the 177.15 low on the month.

GBP/JPY Daily Chart 3/25
gbpjpy daily chart 2/25
(click to enlarge)

The bearish outlook extends beyond the 117.15 low, and has the 175.50-176 lows on the year in sight. In the daily chart, we can see that price is breaking the rising speedline from October 2014, and the 200-day SMA. This would be a sign that bulls are not able to keep control of this market, and that GBP/JPY is in a period of consolidation/bearish correction.

Where to put a stop: Now, if price climbs back above 179 to close out the week, we might still say that the bulls in this market have maintained control. We should therefore put a stop above that. In this bullish scenario, we should look for a climb back to the 181.50-182 support/resistance pivot area. Above 182, GBP/JPY would look more like a pair in an uptrend and less like a pair on consolidation.

Reward to Risk Assessment: Let’s say we have a sell at 178.50 and a stop just above 179, let’s say 179.20. The target is 177.15, with a more aggressive target at 176. This would offer us a reward of 135 pips up to 250 pips to a risk of 70 pips. The reward to risk ratio would be somewhere between 2:1 and 3.5:1 – not bad.

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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.