There seems to be an appetite for risk on the market. Despite a big disappointment after the Fed’s interest rates decision and continuous Asian markets turbulence, investors are hungry for high yielding assets.
Thus, we have our last week Pound Net Speculative positions up by nearly 15K to 3.6K shorts, while the Yen is down by 20K to 26.8K shorts. Furthermore, fear-gauge VIX has been steadily declining since end of August and practically ignoring the Fed’s move end of last week, which is a promising sign for the Pound and the US Dollar. Coupled with the strong looking UK economy, the GBP/JPY pair seems to be on the rise.
Support and resistance
The pair approached a strong resistance level at 187.34 and consolidated below.
While the Composite Indicator tested and failed the resistance level on the daily chart, the RSI successfully bounced off its short and long moving averages and still have plenty of room for growth. There is a slight divergence between the indicators, however, so the price could do another dip towards 186.56 (61.8% retracement on hourly chart)before a further rally.
Yet, one more factor to consider is that the pair is resting under its long-term trend line and below its 130 and 65-period moving averages.
On the 4-hour chart, the picture is a lot better looking for immediate rally however. Both indicators are above their moving averages, the RSI is coming back to test them for the second time shortly. The price is just above its long-term averages.
Support levels: 185.04 (61.8% retracement), 184.10 (50% retracement).
Resistance levels: 187.34 (strong confluence zone), 188.62 (next confluence), 189.14 (trend line).
Open long positions after the breakout above the level of 187.40 with the target at 188.50 and stop-loss at 186.95. Validity – 1-2 days.
Alternatively, long positions can be opened from 186.15 with targets at 187.30, 188.50 and stop-loss at 184.05. Validity – 2-5 days.