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GBPJPY forex analysis
What the world doesn’t need now is an economic slowdown brought on by a super virus. We did that in 2020 and were hoping to have it behind us with the super vaccines playing a pivotal role in the economic recovery. Japan especially had suffered from continuous lockdowns ahead of the summer Olympics and then a massive blow to the country’s coffers when they couldn’t allow tourists and foreign spectators to come and spend money during the Olympic weeks. The newly appointed government will do whatever it takes with monetary policy to shore up the defences, but the Foreign Bond investment and Foreign Stock investment figures are showing a departure of money from the economy. Signalling that investors are risk-off with regards to Japan.
This morning’s forex heatmap also shows flows moving out of the yen and into riskier commodity currencies and the pound. The ActivTrader sentiment indicator shows that retail traders are still willing to bet on the pound weakening against the yen and that is likely due to the recent moves in the GBPJPY on the daily time frame.
If we start with the Monthly chart and work our way down to the H4 time frame we can get a better sense of where we are in terms of a trend and possible continuation of a directional move or not. The Ichimoku indicator is a great visual reference for the current state of market conditions with the cloud acting as an area of significant support and resistance. In the above chart, it is plain to see that we are within the cloud and have been for many months. If we look left to the far-left side of the chart when the price is trending it does so more freely when not in the cloud. It tends to be more range-bound as it fights through old support and resistance levels.
The Weekly chart of GBPJPY shows how the rising green cloud acted as solid support when tested and that also coincides with many other rejections of that level during the formation of this current range. The 150.00 level is obviously a significant level that is being defended by traders and has been for most of 2021.
The Daily chart shows prices under the cloud and the moving averages, which is possibly the reason retail traders are generally bearish on the pair. The Stochastic indicator is starting to indicate that buyers are still present at the 150.00 level as we can see a positive divergence in the oscillator compared to the price swing lows.
As much as I would have loved to buy the dip at 150.00, I personally feel it is better to wait for price action to prove that is now moving in a bullish fashion, rather than relying on the speculators to keep buying the dip. A break above 151.50 and the H4 most recent swing high would be the first confirmation that a trend was in transition from bearish to bullish. A break above the Ichimoku cloud and we could count that as confirmation of a bull trend.
Obviously, if such an important level of support were to break and the price was accepted below the 150.00 level on a higher time frame, we would have to assume the bears would defend that level and it would turn into resistance.