A downtrend might be in the cards for GBPJPY, as the pair formed a head and shoulders pattern on its 1-hour time frame. Price is still completing the right shoulder but a test of the neckline near 159.00 to 159.50 might be in order.

A break below the support area could confirm the potential selloff, taking the pair down by an additional 500 pips or the same height as the chart formation. Technical indicators are also supporting this likely drop.

The 100 SMA is starting to cross below the longer-term 200 SMA, indicating that a reversal from the earlier uptrend is about to start. RSI is on its way down without even reaching the overbought zone, which suggests that sellers are eager to hop in. Stochastic is also turning down from the overbought area so bearish pressure is present.

The BOE decided to keep interest rates and monetary policy unchanged in their latest statement as expected. The minutes of their meeting also indicated a unanimous vote to stay on hold, with some policymakers mentioning that Brexit concerns could prevent them from making any changes in the near future.

However, the UK jobs report released earlier in the week came in stronger than expected, as the number of jobless claimants fell by 18.8K versus the projected 8.8K decline. The average earnings index also improved from 1.9% to 2.1% to show faster wage growth.

GBPJPY3

As for the yen, there were no major reports out of Japan recently and the BOJ minutes didn’t contain any surprises. Still, traders are wary of potential intervention from the BOJ as yen pairs have been volatile lately.

2 thoughts on “GBPJPY Head and Shoulders Formation (Mar 18, 2016)”

  1. Tyler Lund says:

    Good Work Kate.

  2. Damith says:

    Hi Kate…thanks again for your analysis and thoughts – i always appreciate the time and effort you put into your work for us at Forex.today.

    I wanted to ask you a quick question. When the “Brexit” word was announced and market sentiment quickly changed direction, the GBP dropped significantly against all major currencies. Do you think that a “correction” is in order? Some of the data coming out of BOE [as you mention above] is quite good therefore possibly leading to an appreciation in the GBP.

    i would be happy to hear your thoughts… 🙂

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