GBPJPY at inflection point, set to trend lower

The GBPJPY pair last peaked out in 2015 before plunging to a low slightly over a year later in 2016, from 195.76 to 116.49 (a 40 per cent depreciation). Since then, the pair has seen a phase of consolidation, undergoing a series of smaller peaks and troughs within a set range of upper and lower bound. Taking a closer look at the weekly chart reveals that prices are currently in a downtrend within this cycle. Despite having rebounded from a recent swing low, various indications point to the possibility that the pair is at an inflection point, poised to continue trending lower.

The first indication stems from the formation of an ascending triangle pattern that is developed against the backdrop of a downtrend. The pattern is known to be a continuation pattern, which means the completion would result in a follow-through in the direction of prices preceding this pattern. In addition, the resistance level of the pattern coincides with the 61.8 per cent Fibonacci retracement levels. The Fibonacci tool in this case was constructed with the recent points of swing high and low and highlights five intermediary levels excluding the start and end point which identifies key places where price is likely to reverse.

Beyond that, as the GBPJPY touches the top of the triangle pattern, it also coincides with the stochastics oscillator showing an overbought condition. The stochastic oscillator is a directional indicator as well as a measure of momentum. A reading above 80 signifies an overbought condition while a reading below 20 represents an oversold condition. This further validates the potential move lower should the oscillator remain in an overbought condition or move further into the overbought territory.