Market Pulse: Spotting Opportunities in the GBP/JPY Downtrend
The GBP/JPY currency pair pared some of its gains on strong yen.The pair hit a low of 190.92 at the time of writing and is currently trading at approximately 191.12. Notably, the Potential Reversal Zone (PRZ) is set at 200.20, indicating levels where traders may anticipate a potential price reversal.
The Japanese yen gained strength yesterday, rising about 1% to around 150 per dollar, its strongest level in six weeks. This increase was driven by new inflation data from Tokyo, which showed prices rising above 2%, raising hopes for an interest rate hike by the Bank of Japan (BOJ) at its December meeting. Investors now see a 60% chance of a 25 basis point rate increase, up from 50% a week ago. However, there are concerns about Japan's economy slowing down, as recent reports on industrial production and retail sales are not very strong. Overall, the yen's rise reflects both inflation pressures and a weaker U.S. dollar.
From a technical standpoint, the GBP/JPY is trading below both short-term and long-term moving averages, a clear indication of a prevailing downtrend. The immediate resistance level stands at 191.30. A breakout above this threshold could lead to further gains toward levels of 191.70, 192.25, 193, 193.35, 193.80, and 194.15. On the downside, support is positioned at 190.60, with additional levels of interest at 190/189.35, 188.50, 186.79, and 183 should the price fall further.
Analysis of key indicators such as the Commodity Channel Index (CCI) and Average Directional Index (ADX) suggests a mixed trend in the market. These signals reinforce the notion of a potential decline in the GBP/JPY pair.
Trading Strategy: Sell on Rallies
Considering the current technical and fundamental landscape, traders may want to adopt a strategy that involves selling on rallies around the 191.78-80 mark, establishing a stop-loss (SL) around 192.50. The anticipated target prices for this approach could be 189.35 and 188, aligning with the bearish outlook of the pair.
