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FxWirePro: GBP/JPY jumps at 88.6% fibos but interim rallies capped by gravestone doji, hanging man, shooting star and 21-EMA

Of-late, GBPJPY minor trend has been regaining from its losses. 

The pair has bounced back from the recent lows of 126.541 (i.e. around 88.6% Fibonacci level from the July 2015 highs). 

These rallies have taken-off above 7EMAs and witnessed 7.98% gains from last 1 and a half months or so (refer monthly chart).  

But the interim rallies are restrained below 21-EMAs so far, as the back-to-back hanging man, gravestone doji & shooting star patterns have occurred at the peaks of rallies (see oval shaped area on daily chart).

These bearish pattern candlesticks are coupled with overbought pressures hamper interim rallies, and attempt to slide below 7DMAs, resumption of bearish swings should not be panicked.

No substantiation is observed for the extension of the interim rallies from both leading and lagging indicators, for now, more slumps appear to be on the cards.

21-DMA – 138.832

7-DMA – 139.595

RSI and fast stochastic curves started signalling overbought pressurs, show divergence to the price upswings that indicates selling sentiments are still imminent.

On a broader perspective, the major downtrend retraces 88.6% Fibonacci levels and completes inverse saucer pattern. The consolidation phase regains at this juncture i.e. 88.6% Fibonacci levels) but fails at 50%, for now, the interim upswings restrained below 21-EMAs (refer monthly chart). In between, the bearish engulfing patterns occurred at 146.754 and 136.767 levels showed the intensified selling momentum. 

Trade tips: At spot reference: 139.889 levels, contemplating above technical rationale, one can execute tunnel options spreads using upper strikes at 140.548 and lower strikes at 138.831 levels. Such exotic option likely to cap upside movement and favor selling sentiments and fetch leveraged yields as compared to spot.

Alternatively, amid Brexit decision shorting futures of mid-month tenors are advocated with a view of arresting further potential slumps, we wish to uphold the same strategy. Writers in a futures contract are expected to maintain margins in order to open and maintain a short futures position.

By Niranjan Patil
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