GBPJPY had been moving inside an ascending triangle pattern on its 4-hour time frame and has just broken below support. This signals that the pair could be in for longer-term losses, possibly by around a thousand pips or the same height as the chart formation.
However, the 100 SMA is above the 200 SMA for now so the path of least resistance might still be to the upside. In addition, stochastic is indicating oversold conditions so selling pressure might be exhausted while RSI is also in the oversold area as well. These hint that a pullback to the broken triangle support around 157.50 might take place before the pair carries on with its drop.
A strong return in buying pressure, however, could lead to a move back inside the triangle pattern and perhaps a test of the resistance around 162.00-163.00. Even stronger bullish momentum could spur an upside breakout.
Brexit polls have been weighing the pound down for the past few days since some have been showing a shift in the lead in favor of those who want to exit the EU. This scenario could bring increased economic and financial uncertainty but leaders of the pro-Brexit camp have been emphasizing issues concerning immigration and security.
Meanwhile, Japanese Prime Minister Abe’s decision to delay the sales tax hike gave the yen a boost as this promised a longer period of strong consumer spending and price levels. The downbeat non-farm payrolls report from the US also played a role in fueling this pair’s move lower, as the drop in demand for the dollar triggered a sharp yen rally.
The UK economic calendar is light this week and the only top-tier report is the manufacturing production figure due Wednesday which might show a 0.1% uptick. As for the yen, Japan’s final GDP reading, preliminary machine tool orders report, and tertiary industry activity data are due. Stronger than expected data could help keep the pound afloat but Brexit updates might take the center stage in price action.
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Kate has been a technical analysis covering forex for many years. She our daily forex outlook and works in the New York office of Forex.Today