Why I think GBP/JPY hits 210

Some interesting things have been going on in the EUR and CHF of late, but they have not really crossed that action over to their fellow European currency, the GBP, yet. GBP/USD has been, and continues to be, range-bound. If we switch our focus to GBP/JPY, though, we can see something worth looking at.

As the daily chart below shows, the cross has been relatively narrowly traded the last few weeks, consolidating around the 204-205 level. The action late last week and in to the start of this one looks like it might be changing the outlook a bit, though. Notice how the Bollinger Bands had gotten very narrow. In fact, as the Band Width Indicator (BWI) plot at the bottom of the charts shows, the Bands started April at their lowest relative width in about a year. That indicates a market set-up for a volatility expansion. The recent break through 206 looks like it may be the start of that. The Bands are widening and GBP/JPY has broken some important near-term resistance. That seems a pretty good indication that we might be seeing a nice rally starting.



I've recently written about how EUR/USD and EUR/JPY show signs of being set up for major long-term moves. Alas, I cannot say the same thing about GBP/JPY at this stage. The weekly chart below just does not provide much indication in that manner.



Notice the contrast between the two timeframes. While both have seen significant consolidation lately, on the weekly timeframe there aren't yet any indications that the range is giving way to a new trend. The Bollinger Bands are holding at a steady width and there is both good support and solid resistance.

What that leaves us with is a probable run up in the short to intermediate term, but one which is likely to face resistance in the longer-term. That is why I think GBP/JPY will run up to the 210 area over the next couple of weeks. At that point, though, it will probably stall out, at least for a while.

John Forman is the author of The Essentials of Trading (Wiley). To celebrate the book's release later this month, there will be a special 24-hour only promotion with giveaways worth $1000s. Find out more at www.TheEssentialsOfTrading.com/special-offer.html.