GBP/JPY – Retest of breakout. New weekly sell swing?

Following a slight drop in UK inflation and comments about a potential BoE pause, the pound appears to have started to lose strength against the yen. The Bank of Japan still has loose monetary policy, but rumors are starting to trickle in that the new BoJ governor may tighten monetary policy slightly in the near future.

Technical Analysis

1W Chart

On the weekly chart, there is a breakout and retest of the uptrend, which confirms the change in the medium-term trend. Strong price action signal for reversal: bearish hammer candle and bearish engulfing candle hint at the beginning of a new downward impulse. The DeMarker Oscillator remains weak just above oversold territory and is likely to see a re-entry in the coming weeks that will strengthen momentum. In the medium-term range, I expect the development of the downward movement towards the zone around 150.-148, with a successful breakthrough of the zone around 155.

1D Chart

The daily chart clearly shows the failure of the price to hold inside the channel, forming a bulltrap. In such a formation, the downward momentum can be strengthened, under the pressure of closing long positions. The Sequential is in a bearish cycle with a printed 5, and the DeMarker Oscillator is breaking out of overbought territory, which supports the rest of the signals for a new bearish move.

I expect to reach the first support zone around 155 in the short term and potentially deepen to 150 – 148 in the medium term horizon.

Long-term banking expectations

Banks forecast values around 153 by the end of the year, with a slight recovery expected in Q1 2024. This supports the idea of a new swing to the downside.

Medium-term banking expectations

Bank expectations for Q2 are mostly spread around 157 – 155, which also supports the idea of a downward movement in the coming months.

Conclusion

Current levels are attractive for short positioning in the direction of the new trend. It expects to reach the support zone around 155 in the short term (a few weeks) and potentially reach the levels around 150 – 148 in the coming months. The stop loss zone for this setup is above the current peak, around 166,300, outside the descending channel and above the 200 periodic one.