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GBP Looking Top-Heavy Oct 22 at 16:55 GMT

GBP Looking Top-Heavy

Forex traders that are focused on the peripheral majors will often look to emerging trends in the British Pound (GBP) as a way of assessing where the market stands at any given time.  For the most part, activity in the GBP/JPY has been positive after posting the longer-term lows in the middle of 2013.  But when we look at the technical structure that is now presenting itself in the pair, it is quickly starting to become obvious that the prior trend is over-stretched and ready to start posting some corrective declines.

Of course, this does not mean that the GBP is going to post an all-out reversal over the longer term.  We are still seeing a buildup of inflationary pressures at the consumer level, and this is typically something that causes a good deal of concern for the Bank of England (BoE).  If we start to see changes in the ways the BoE is defining its potential interest rate policy in 2016, there would likely be a good amount of positive momentum left in the market that could still drive the GBP/JPY higher.

GBP/JPY:  Weekly Chart


Source:  Alpari Forex

When we look at the weekly chart in the GBP/JPY, we can see what might now be the early stages of a Head and Shoulders pattern, which is one of the most bearish price patterns in technical chart analysis.  If this does unfold, we will need to see a clear break of what would then be the neckline which would come in near support at 176.  This would mean that further downside would be expected, and that long positions in the pair should be avoided.

On the other side of the equation, we have a very important resistance level that is currently seen near 196.  A bullish break here would put the psychological mark at 200 quickly into view, and a later break here would mean that the uptrend in the GBP/JPY is still alive and well.  

So, as we can see there are a few different influences that are likely to impact the next trends in forex pairs like the GBP/JPY.  At the moment, the pair is starting to look top heavy but there are still a few supportive events that would push prices higher.

Article by: Richard Cox

Richard Cox

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