GBPJPY—no pottering about for this pair

One thing you have to love about this pair (as long as you’re not on the wrong side of it) is the way it can rush headlong into the fray and get to where it’s going to go. My short position that I added yesterday at 144.52 at 7:10 AM hit its profit target by 11:26 AM (141.17 for + 335 pips). Clearly, I didn’t expect it to move quite that fast or I would have been in there moving the target. I still have some of my short position left from 144.00 and we’ll just have to see if it profit stops out in a rally or whether it remains on this wild ride down.

As to what it will do now is uncertain. What we know is that it has decisively broken its uptrend line that began in January 2009. It also broke a gentler uptrend line, drawn from the February ’09 lows to the December ’09 low. One can see that after its fall to 139.36 the pair is consolidating a bit. Is the consolidation only a pause for a slug of Buckfast—a Scottish “tonic” wine with 15% alcohol and the caffeine of eight cans of Coke in a bottle—or will there be a bounce here?

If there’s a bounce, it’s a good idea to remember that this pair’s daily average true range is 226 pips. From the low today of 139.36, one could see it reaching 141.61. Is there any resistance coming in at that level? The 38.2 retracement of the drop from the February 3 high is near here; the December low was 142.02. Yen pairs seem to like round numbers as well. The 50% retracement from the 145.31 February 3 high comes in at 142.34. That is also a fib confluence zone. One could see it nipping back here.

The other thing to remember is that the range for this pair has been 139.03 to 163.09 for most of the year. One can’t rule out that the pair is still ranging and that this might be a good place to look for long positions, depending on price action, or to at least lighten shorts.

Resistance:

141.61 to 142.62 is possible (142.62 is the redrawn uptrend line)
143.07 (the February low before this debacle)
144.00/19 (round number and the original, broken downtrend line)

If it doesn’t rally, where are the supports? The overnight low of 139.36 is obviously the first one. This is close to the November low of 139.31 and the April ’09 low of 139.04. If you look back on the chart, you see support at 139.71/74 n the fall of 2008. Breaking down through this will require a formidable effort. Other support levels are:

137.58 (served as support several times in 2009)
135.72 (March ’09 low)
131.47 (March ’09 low—yes there were two lows in that month that could be supportive)

As I wrote in January, the pair had a confirmed double top in June and August and the price target from that pattern was 130.45. One can dream.

Here’s the three-hour chart:



© Dianne Fecteau, 2010. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog, you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.