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GBPJPY is up 10% for the year. Will traders start taking profits?

December has been good for GBPJPY traders who are long but most retail traders on the ActivTrader platform have been consistently trying to short the currency pair.

Forex Analysis – GBPJPY

The ActivTrader sentiment indicator for the GBPJPY is showing that an extreme number of traders on the platform are trying to short the currency pair. This comes at a time when the sentiment around the Omicron variant is becoming more bullish as the severity of the disease is not currently leading to increased hospitalisations.

Technically traders may be looking to the supply zone that formed on the daily GBPJPY chart in early November 2021 as the Omicron worries were beginning. The 155.00 to 156.00 zone was the area traded before the first big sell-off. Yesterday the momentum switched from being bearish to bullish again as the daily 20 EMA crossed over the 50 EMA. Though they have both been above the 200 EMA since the middle of December. If the retail traders are correct, we could have a pullback to the 20 & 50-period averages.

Traders may also be looking at the price action over the last 12 months, which is beginning to look more like a Head and Shoulders pattern. The last month has seen GBPJPY trade over 3% higher and in the last year it has held on to 10% gains. These technical chart patterns rarely work out as planned, but the double bottom that printed between September and December of this year is a decent target for those looking to grab some liquidity. If the pattern were to play out to the downside, we could be in for an 1800 pip move lower.

At the start of the London session both the yen and pound have started the day mixed against their peers with flows going more towards the commodity pairs and out of the safe-haven currencies. This would help any contrarian GBPJPY bulls today.

On an intraday hourly chart, we can also see that there could be some support in the form of the 50-period EMA today as it has been acting as dynamic support since the break higher than 152.50. While all 3 EMAs on the H1 chart are bullish I would be looking to buy the dips.

Another trading idea would be to buy the breakout of the Asia-Pac session. With a risk-reward ratio of 1:2 the bullish target would put price above the daily supply zone, though I would imagine the rise would not be linear as it fought through the daily volume.

As it is coming to the end of the year and volumes are thin it may be best to monitor the markets rather than placing a trade today and come back next week to see how these levels worked out for the pair.


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