BEARISH WEEKLY AND DAILY H&S FORMATION WARN OF MAJOR PULLBACK; LOOK TO SELL
Gbp/Jpy: Although the cross has been recovering since posting historical lows by 118.85 in early 2009, the overall trend is still grossly bearish and we continue to look for opportunities to sell into rallies. The weekly chart shows a very bearish close in the previous week, after being unable to extend gains to fresh 2009 highs and subsequently breaking the previous weekly low, to end a sequence of 4 consecutive positive closes of higher highs and higher lows. The result has been the formation of a major head & shoulders topping formation on the daily chart, which now shows the market attempting to carve out the right shoulder before what is anticipated to be a more significant decline over the coming weeks. Although the neckline by 155.00 was marginally breached on Tuesday, inability to close below negated the likelihood for an immediate drop, only warning of the anticipated decline. However, any rallies from here are now seen well capped ahead of 160.00 and we will look for an opportunity to sell into the current rebound, ahead of renewed weakness and a break back below the neckline. A break below 154.10 should accelerate towards the measured move objective of the head & shoulders top, which comes in by 147.50. Strategy: SELL @159.05 FOR AN OPEN OBJECTIVE, STOP @161.55. Recommendation to be removed if not triggered by NY close (5pm ET) on Wednesday.
Written by Joel Kruger, Technical Currency Strategist for DailyFX.com
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