What happened to GBPJPY? Is it still bullish?
GBPJPY printed a false trend line break signal on 31 March 2017 but immediately unbroke the next session. It’s trend is still falling. In addition, market sentiment changed in April. GBPJPY driver is now JPY, not GBP.
This is a follow up of this post on 31 March 2017. I have a request from a reader to do an analysis in Chinese. There are two charts attached.
GBPJPY looks just right to try a higher move. I suspect past 3 months was some kind of consolidation-accumulation. In any case, traders will have a tried and tested support to work on.
Trend line break turned out to be false signal
Look at first chart showing GBPJPY. What happened to GBPJPY on 31 March 2017 was a trend line break. The next session however which is 03 April, the trend line ‘unbroke’. This is a very common phenomenon that shows trend line breaks as an unreliable signal. I have a comprehensive post on false trend line breaks here.
If you follow the blue boxes in this chart, they show price action on a week-week basis. In this aspect, apart from Week 11, GBPJPY fell every week in a sequence of lower highs, lower lows. There was no bullish expansion in price on 31 March or after. Apart from the false trend line break, there was absolutely no sign of bullish reversal.
图一：3月31日英镑对日元 突破趋线是一个假信号。第二天也就是4月3日，GBPJPY马上回撤，接着持续下跌所以趋线仍然是阻力。操作外汇以突破趋线作为信号是不可靠的 －我在这写过一则文章（英语）解释，也提供了许多例子。
Something changed in April
Look at this second chart.
GBPJPY had a fairly stable relationship up to 31 March, which explains the more or less flat base we saw in Q1. In an unfortunate timing, JPY ‘divorced’ itself from GBP by aggressively strengthening from the next session starting from 03 April. This resulted in the fall in GBPJPY.
In my opinion, GBPJPY falling is now a dynamic due to JPY movement, not due to GBP. There could be any number of reasons but this movement is now carried by JPY.