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3 GBP JPY Bearish Signals – Are they Enough?


May.29.2017

Analyzing the pair from all points of the IDDA, I noticed three GBP JPY bearish signals. But Are these enough for a long-term bearish position? Or perhaps we should only consider a short-term range? 

 

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1- Technical Points: GBP JPY Bearish Signals

Daily Time Frame:  The GBP JPY pair hit a hard resistance at 148 twice in the past six months, and could be in the process of forming what appears to be a double top chart pattern.  The Kijun line has just crossed below the Tenkan line, which is the first  Ichimoku Kinko Hyo confirmation signal based on our Ichimoku Secrets strategy.

 

GBP JPY Bearish Signals - Daily Chart Technical Analysis GBP JPY Bearish Signals - Daily Chart Technical Analysis

 

While the future cloud is moving up, the pair has been testing the pivot point of 142.81. A break below this level could add on to our GBP JPY bearish signals.

 

Monthly Time Frame: The pair remains below the monthly Ichimoku cloud. For the month of May it could be on its way to form a Gravestone Doji. Depending on the direction of June's Candlestick, this could turn into a shooting star, which could add on to the  GBP JPY bearish signals.

 

GBP JPY Bearish Signals - Monthly Chart Technical Analysis GBP JPY Bearish Signals - Monthly Chart Technical Analysis

 

 

2- Fundamental Points

The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.

 

UK Side: The biggest drag on the UK economy this month was their GDP growth which only came in at 1.9% year-on-year, missing the BOE’s forecast of 2.0%.

Looking at the most recent data, UK's CPI increased by 2.7% year-on-year. While this may seem impressive, it’s actually within the BOE’s forecast, so it’s not likely to entice more BOE officials to join the hawkish camp, therefore it's likely to add on to our GBP JPY bearish signals.

 

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If these recent developments continue, then it looks like the BOE may end up in trouble. Cutting rates may help with growth but it will likely result in an inflation overshoot. But if the BOE decides to hike rates to keep inflation in check, it may end up threatening growth.

There’s still some hope for the UK economy though. Retail sales, for one, rebounded in April. Another is that the PMI readings remain elevated. More importantly, the manufacturing sector reported an increase in foreign demand in April. But will this translate to higher exports and a narrower deficit in April?

Well, we’ll find out soon enough.

 

 

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Coming up: Markit UK PMI Manufacturing (MAY) - Thursday June 1 at 8:30 AM GMT.

Japan's Side: We have a number of economic data released from Japan this week. We have Japan's Industrial Production on Wednesday's Asian session, as well as their Construction Orders for April. On Thursday they'll release their first quarter capital spending, which  serves as an important indicator of growth and plays large part in GDP. It is expected to tick higher to 3.9% from last quarter's 3.8%.

 

Better than expected data out of Japan, could strengthen the Japanese Yen. Which could ultimately push the GBP JPY pair lower.

 

3- Market Sentiment

Market sentiment analysis is the 3rd point of the IDDA, taking a contrarian view to crowd sentiment. Retail trader data on Friday showed 42.9% of traders were net-long GBP JPY. In fact, traders have remained net-short since Apr 27 when GBP JPY traded near 140.398; price has moved 1.5% higher since then. 

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The fact traders are net-short suggests GBP JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current price trend may soon reverse lower despite the fact traders remain net-short, adding to our GBP JPY bearish signals. 

 

Developing a Trading Strategy Considering GBP JPY Bearish Signals

As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend trading without three or more confirmations of a specific direction from technical, fundamental and market sentiment points of view. Join us in our strategy development room by becoming a member of our investing group to learn more.

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Disclaimer: Forex is one of the HIGHEST risk investing instruments there is. If you don't have sufficient risk tolerance to trade forex, you can try investing other online securities.

 

Combining all points of the IDDA, here are Invest Diva's calculations for important approximate levels to keep an eye on:

Support Levels Turning Point Resistance Levels
129.77 136.45 148
133.33 142.81 151.98

 

 

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