FxWirePro: GBP/JPY formation of descending triangle signal weakness – Trade tunnel spread and short hedge

Technical analysis (chart and candlestick patterns occurred): On daily plotting of GBPJPY, failure swings have been observed at the stiff resistance of 149.161 levels several times in recent times. On the contrary, at 143.769 levels we see attempts of mild bounce back.

In this journey, bears form a descending triangle pattern coupled with the technical indicators to signal weakness.

Consequently, the price slides below 7 & 21-DMAs with bearish crossover and bearish momentum, so the current downtrend likely to prolong on intensified bearish momentum, bearish DMA & MACD crossovers.

Hence, today’s price rallies have not been convincing 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 the 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.

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.

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: 144.214 levels, we advocate constructing tunnel spread, using upper strikes at 144.7944 and lower strikes at 143.749 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 -4 (which is neutral), while hourly JPY spot index was at 65 (bullish) while articulating (at 06:18 GMT).

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