FxWirePro: GBP/JPY engulfing pattern develops double top formation to signify major downtrend – Bid short hedge ahead of BoE and BoJ

Technical analysis (chart and candlestick patterns occurred): On daily plotting of GBPJPY, has formed bearish engulfing patterns at 142.679, 146.574 and 144.165 on daily and monthly terms respectively.

These bearish pattern candlesticks have countered the previous bullish trend to form double top pattern on daily plotting, consequently, we highlighted these patterns in our previous posts and one can observe the selling sentiments ever since then. 

Double top pattern (which is bearish in nature): The pair forms top 1 at 149.716, top 2 at 149.489 and neckline at 142.815 levels.

Most importantly, the above-stated bearish patterns are coupled with the bearish signal by leading oscillators and bearish DMA and MACD crossovers.

As a result, today’s trend has been attempting to slide below neckline of double top pattern upon above-stated bearish engulfing formation as the momentum and trend are in conformity to the downswings (in bears’ favor). 

On a broader perspective, the major downtrend that went in the consolidation phase has now resumed bearish streaks again (refer monthly plotting), where engulfing pattern has occurred at 156.929 and rail-road pattern at 144.165 levels on monthly terms to nudge prices below EMAs and retraced more than 38.2% Fibonacci levels.

Trade tips: Before we proceed further, just quickly glance through our previous write-up on this pair, where we advocated short hedges. Refer below weblink for more reading: https://www.econotimes.com/FxWirePro-GBP-JPY-bulls-in-both-minor-trend-and-consolidation-phase-seem-weaker-on-bearish-engulfing-patterns--Trade-boundary-strikes-1439043

Had you initiated those positions, you would have arrested the recent bearish swings and kept on risk on the check.

This week, BoE and BoJ have been scheduled for their monetary policies, both are expected to remain on hold. One can now still uphold shorts in futures contracts of mid-month tenors with a view to arresting further potential downside risks. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.

Alternatively, on daily trading grounds, at spot reference: 142.758 levels, we advocate constructing tunnel spread, using upper strikes at 143.392 and lower strikes at 142.176 levels. The strategy is likely to fetch leveraged yields as long as the underlying price keeps dipping but remains above lower strikes on the expiration.

Currency Strength Index: FxWirePro's hourly GBP spot index is flashing 21 (which is mildly bullish), while hourly JPY spot index was at 61 (bullish) while articulating (at 07:42 GMT).

For more details on the index, please refer below weblink: http://www.fxwirepro.com/currencyindex