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Trade view / 02 October 2016 at 23:33 GMT

GBPJPY: Descending Triangle holds the key

Managing Director / Technical Research Limited
New Zealand
Background

GBP was on the defensive when the Asian trading session started today after British Prime Minister Teresa May said the UK would trigger Article 50 by the end of the first quarter next year.

The reality of Brexit will now start to concentrate the minds of GBP traders. May’s speech at the closing of the Conservative Party conference on Wednesday will also be of interest.

Meanwhile there are also some potentially market moving economic data releases this week, starting with the Markit manufacturing survey later today and finishing with August Industrial Production on Friday.
 
In Japan, last Friday’s inflation update gave no cause for optimism and the ten-year Japanese government bond continues to trade under zero, probably at the bottom of the Bank of Japan’s target range of “more or less zero percent”.

The yield curve target will be reviewed at each board meeting. It’s worth noting that the exchange rate hardly got a mention in the bank’s recent “comprehensive review” of monetary policy nor in governor Haruhiko Kuroda’s follow up speech last week.

It seems the markets are more obsessed with USDJPY than the BoJ is. 
 
The regular Tankan survey will be released later today but it’s a long time since it had much of an impact on the markets.

Management and risk description

From a classical charting perspective, GBPJPY displays a potential 3-month Descending Triangle pattern (see daily chart below) where a sustained break below 129.60/128.80 support would herald a probable sell-off toward the 116.00 level.

In the short term, until the 129.60 support level is broken, there is opportunity for a recovery toward the low/mid 135.00’s, before risk reverts to the downside.

Parameters

Entry: Opportunistically, any break below 129.50 today/tomorrow is seen as a sell.

Stop:
130.08 initially.

Target:
50% at 120.38 and 50% at 116.70.  

Time horizon:
Allow sufficient time for trade to develop.

GBPJPY daily chart (click to expand)
GBPJPY  Daily chart
Source: ThomsonReuters  

GBPJPY weekly chart (click to expand)
Source: ThomsonReuters  

— Edited by Adam Courtenay

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