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FX Analysis

Stalking the Beast

The British Pound has been exhibiting a lot of bullish momentum recently and has made a strong start to 2021.  As a technical, trend-following trader, this puts the GBP pairs directly into my cross hairs and whilst there are a number of notable contenders, today my focus is GBP/JPY. 

This is a currency pair is commonly known as the “Guppy” but as it often has strong moves, “The Beast” is a more apt name. With the Yen showing weakness as GBP is showing strength, this opens the door to a potential trade opportunity.

From the analysis with the monthly chart (above), we can see that having been very much ranging over the last couple of years on the monthly timeframe, a new uptrend has now been established with both a higher low and higher high in place.  The price action itself looks bullish with each monthly candle closing above the high of the previous candle and the indicators showing bullish convergence. 

On the weekly chart (above), the momentum is clearly to the upside, with an established uptrend in place.  There is a clear series of higher highs and higher lows in place, the 10, 20 & 50 period moving averages (MA) demonstrating a fanning pattern with the faster MAs above the slower movers.  The trend momentum appears to be in agreement with the indicator convergence on this timeframe, suggesting that this trend may well still have more to offer.

Moving down to the daily chart (above), things are shaping up for a potential trade.  There is a well-defined uptrend on the daily chart, with a clear series of higher highs and higher lows and the strength of the trend appears to be supported by the bullish moving average geometry.  Looking at the MACD and RSI, both indicators are converging with price confirming the trend momentum.  This price action, combined with the strong price action of the higher timeframes, means that this currency pair deserves a place on my watchlist. Now it’s a question of wating for a valid trade setup to develop.

Price had become slightly extended from the MAs on the daily chart, but this situation looks to be correcting itself as price retraces. And a move back to the area around the 10 & 20 day MA could present an opportunity to enter a trade.  I will be looking for a pullback to this zone in combination with a reversal candle.  The confirmation for trade entry would be the break of the high of the reversal candle and I’ll look to place my stop loss under the swing low.


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