Technical Analysis of GBP/JPY
The debt crisis in Europe is really starting to have an adverse effect on the GBP/JPY. Reports earlier this week that investors are starting to sell off German government bonds, which are supposed to be issued by the strongest economy in Europe, have done nothing to help the situation, neither have fears of a renewed recession in the UK.
Fig. 11.25(a) is a yearly chart of the GBP against the JPY. It can clearly be seen that between the end of November 2010 and the end of March 2011 the price moved mainly sideways. At the beginning of April 2011 we saw what looked like a breakout; the price closed at 135.50, which was higher than the previous high it reached on 18th February. This continued until 8th April when the GPB closed at 138.82, with no sign of the pending collapse in sight.
From then on it was downhill all the way, apart from a few futile attempts by the bulls to stop the avalanche. On 22nd September the price dropped to 117.817. After that it moved mainly sideways for a while before starting to climb again towards the end of October. On 31st October it briefly reached 127.31 before starting to fall again.
Right now the price is below the Ichimoku cloud again. The green Chinkou Span line is also under the value of 26 periods ago, confirming that the bears have taken over for now. This is also confirmed if we look at Fig. 11.25(b), a chart of price movements over the last month.
Short traders should probably wait for a close below the recent low of around 117 before venturing into a short trade. In the current circumstances a long trade would be very optimistic; at least wait for the price to close above the Ichimoku cloud a number of times.