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GBP/JPY May See Strong Resistance Soon

Last updated 3/19/2009 7:01 PM EST (GMT -5) 0 Comments - Add your comment

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Bradley W. Gareiss

Technical Analyst, GFT

The foreign exchange markets have been very interesting this week.  We have seen rapid moves against the dollar versus virtually every other currency.  These moves have been large in magnitude, and we have not seen any substantial pullbacks.  These types of moves result in few trade opportunities for traders who use geometric patterns to make decisions in the market.  Of course, just when it seems there are no patterns, we usually see a slew patterns occur at once.  So stay tuned towards the end of the week.

Yesterday we saw similarly large moves in the crosses as well.  However, there are several setups developing today.  The pattern with the best symmetry at this point is a bearish butterfly emerging on the GBP/JPY.  

We are looking to sell the GBP/JPY at point D (138.89).  Point D is located at the convergence of the following points:

There are not a lot of fluff to this trade setup; it just has overall solid convergence.  There is nice price symmetry within the bearish butterfly as the 127.2% extension, 161.8% extension, and AB=CD converge at nearly identical ratios.  Additionally, the 78.6% retracement on the 1hr Chart converges at almost exactly the same spot as the butterfly levels.  This is the type of tight convergence that leads to high probability trade setups.  Of course, we must watch for long bars near the completion of the CD leg.  If we accelerate into the entry, we will cancel the trade.  Also, if the pair falls below 136.25 before entering, we will cancel the trade until we are able to update it.

To recap, we will look to sell the GBP/JPY at 138.89 with our stop placed at 139.45.  Our initial profit targets are 138.08 (38.2% of CD) and 137.44 (61.8% of CD).

1hr Chart - 78.6% Fibonacci retracement at our sell entry (138.89).	30min Chart - Bearish Butterfly; sell @ 138.89.

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