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, we looked at a support level in GBP/JPY that had just seen its third test just below the of 130.00. And while there was a bit of additional run-higher after that support inflection, the pressure of a potential ‘hard Brexit’ combined with the flash crash in Sterling on Friday of last week created a vigorous break of support; and now GBP/JPY is trading at levels not seen since 2012.
On the short side of the move, the prior points of support could set the stage for resistance moving forward, and there is a confluent zone very nearby that could become very interesting. We pointed out the level of 129.25 in our last article as support, and this could be re-used as resistance for short-side strategies. A bit higher at 130.00 is a major psychological level, and this is just five pips away from the prior swing-low before the big break of support took place. Should price action find resistance at this zone, traders can look at short-side continuation setups provided that they’re comfortable with the risk; and given that the prior swing high was all the way up near 132.50, this could mean as much as a 250-pip stop. If the entry is taken near the 130.00 level, this would mean a run down to 125.00 could offer an approximate 1-to-2 risk-reward ratio.
The long side of the move is going to be a bit more difficult to work with, especially given today’s move of ~225 pips off of support. But the price action swing from the flash crash is very near the low from yesterday; and this all took place within 25 pips of the psychological level at 125.00. Should this support hold, and should today’s gains moderate closer to this level – there could be motivation for reversal plays; but keeping the stop relatively tight will be of upmost importance as a long position would be going very much against the grain of the trend. This scenario would likely need some help from British politics, and basing a trade around such a theme can be a dangerous thing.
Chart prepared by