GBPJPY Triangle Formation (May 18, 2016)

GBPJPY has formed higher lows and lower highs, creating a symmetrical triangle pattern on its 4-hour time frame. Price just bounced off the triangle support around the 155.50 minor psychological level and might be due for a test of resistance at 159.00-160.00.

The 100 SMA is above the 200 SMA for now so the path of least resistance is to the upside. However stochastic is on the move down so sellers are in control of price action for now. RSI is also heading south so price could follow suit, possibly even leading to a break below support and a continuation of the longer-term selloff for GBPJPY.

The triangle pattern is approximately a thousand pips tall so the resulting breakout could be of the same size. A break below the 155.00-155.50 area could lead to a drop until the triangle lows at 152.00 then onto new lows. Similarly, an upside breakout from the resistance could lead to approximately a thousand pips in gains.

Data from the UK came in weaker than expected yesterday, as the headline CPI fell from 0.5% to 0.3% and the core CPI dropped from 1.5% to 1.2%. UK jobs data is due today and a 4K rise in claimants is eyed, possibly enough to keep the unemployment rate steady at 5.1%. The average earnings index is expected to fall from 1.8% to 1.7% to indicate much weaker wage growth.

Later on, the UK retail sales report is up for release and a 0.6% rebound in consumer spending is eyed. Updates on Brexit opinion polls have also been influencing pound price action in the past few days, with a larger lead in favor of staying in the EU yielding gains for the currency.

As for the yen, the Japanese GDP report printed a stronger than expected 0.4% growth figure versus the projected 0.1% uptick. Core machinery orders are lined up next. 

By Kate Curtis from Trader’s Way