GBP/JPY: Is a Breakout Pending Amid Stable Bullish Momentum? - 1 April 2020

Japan released its first-quarter Tankan Survey, which showed service sector resilience. It is worth noting that Covid-19 related disruptions were not evident until the last third of the period this survey covered. The outlook is negative across the board and most evident in the smaller companies. The reaction in the GBP/JPY was muted with price action stable inside of its short-term support zone after it pushed through its descending 61.8 Fibonacci Retracement Fan Resistance Level. Bullish momentum is stable following a minor retreat, establishing conditions for a breakout extension.

The Force Index, a next-generation technical indicator, confirmed the advance in this currency pair by reaching a new high. It has since reversed, but the horizontal support level prevented two breakdown attempts, as marked by the green rectangle. The ascending support level is adding to upside pressures on the Force Index, while the descending resistance level is narrowing the gap to the horizontal support level. This technical indicator is anticipated to spike higher, confirming bulls are in control of the GBP/JPY.

A ¥60 trillion economic stimulus package was requested by Japanese Prime Minister Abe to combat the fallout of the global pandemic. The Tokyo Olympic games were postponed, and Japan’s export sector is under pressure. Adding to economic worries is the safe-haven appeal of the Japanese Yen. After the UK’s initially slow response to the virus, the government stepped-up efforts and is now getting ahead of it. The GBP/JPY is taking a temporary pause inside of its short-term support zone located between 132.144 and 134.615, as marked by the grey rectangle, from where more upside is expected.

Price action may dip into its converted 61.8 Fibonacci Retracement Fan Support Level, from where a breakout can accelerate the GBP/JPY into its resistance zone. This zone is located between 142.625 and 144.948, as identified by the red rectangle. Volatility is favored to remain elevated, as global equity markets are likely to face more selling pressure. Many countries fail to implement proper responses to the virus and remain reactive rather than proactive. The UK’s current stance and fiscal position create a distinct bullish bias for this currency pair. You can learn more about a breakout here

GBP/JPY Technical Trading Set-Up - Breakout Scenario

  • Long Entry @ 133.100

  • Take Profit @ 143.100

  • Stop Loss @ 130.500

  • Upside Potential: 1,000 pips

  • Downside Risk: 260 pips

  • Risk/Reward Ratio: 3.85

In case of a collapse in the Force Index below its ascending support level, the GBP/JPY is likely to enter a minor corrective phase. Forex traders are advised to consider a breakdown from current levels as an outstanding buying opportunity. The downside potential is limited to its 38.2 Fibonacci Retracement Fan Support Level, which entered its long-term support zone located between 123.344 and 126.321.

GBP/JPY Technical Trading Set-Up - Limited Breakdown Scenario

  • Short Entry @ 128.750

  • Take Profit @ 124.500

  • Stop Loss @ 130.500

  • Downside Potential: 425 pips

  • Upside Risk: 175 pips

  • Risk/Reward Ratio: 2.43

GBPJPY

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.