FxWirePro: GBP/JPY to hit 1y lows after breaching rising channel support – Trade tunnel spread and uphold short hedge

Chart and candlestick patterns occurred: The intermediate trend of GBPJPY, so far, was spiking through rising channel (refer weekly chart), but for now, bears have managed to breach below this channel support. In addition, shooting star pattern candles has occurred at 146.748 levels which is again bearish in nature and evidences considerable slumps below EMAs on this timeframe. 

Both leading indicators have been signaling further price slumps to substantiate the above bearish patterns.

Ever since the occurrence of the breach below channel support, the price has been restrained below 21EMA (on weekly terms).

While on minor trend, hanging man and shooting star patterns have occurred at 148.642 and 148.589 levels (on daily charts), one can observe the extreme bearish sentiments thereafter. In between, spinning top has occurred at 146.620 levels, ever since then, steep slumps below 7DMAs have been observed.

Let’s not forget we cannot afford to isolate this signal. The above-stated bearish patterns are coupled with leading oscillators and trend indicators. Both RSI & Stochastic curves have shown downward convergence to the ongoing price dips that indicate intensified bearish momentum, while the trend indicators show bearish DMA and MACD crossovers that signal downswings to prolong further.

Overall, bears are most likely to extend further price slumps to hit 1-year lows on above bearish signals.

Trade tips:

On daily trading grounds, at spot reference: 142.911 levels, we advocate buying tunnel option spreads using 143.155 as upper strikes and 142.349 as lower strikes. Tunnel spreads are binary version of debit put spreads, the strategy is likely to fetch positive yields as long as the underlying price keeps dipping but remains well above lower strikes on binary expiration.

Alternatively, we’ve already suggested short hedges in our previous posts, we continue to stay short in futures contracts of mid-month tenors with a view to arresting potential downside risks. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.

Currency Strength Index: FxWirePro's hourly GBP spot index is flashing -82 (which is bearish), while hourly JPY spot index was at 62 (bullish) while articulating (at 05:34 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex

The above indices are also conducive to the derivatives strategy as advocated above.