Inverse Head & Shoulders in Sterling/Yen

The FX Trader’s view - After a decisive trend downwards in GBP/JPY, bears may have become less certain – the technical clues are mounting that point to growing risk of a recovery phase. A completed, bullish inverse Head & Shoulders pattern on the Daily chart would be the deciding factor.

• MONTHLY CHART: This cross rate more than halved in value over the last two years. Jan saw a test of a recent Fibo projection around 121.00 (the second leg down from 215.89 high was just over 1.618 of the first leg of 251.09-192.46).
• WEEKLY CHART: The structure of the Weekly chart could now be implying the downtrend is slowing. In recent FX Trading Guides we have been noting the positive divergence coming from the Weekly RSI indicator, warning of possible trend reversal.
• DAILY CHART: Recovery back above the 130.00 area was the first positive, though inconclusive, sign. A decent break through the small falling resistance line, say a close above the 137.31 09-Feb high, would be a bull trigger now. A further break above the 141.53/70 area (07-Jan high and 23.6%) would be a further boost. Note that that small resistance line can seen as the neckline of an inverse Head & Shoulders base. The 127.03 12-Feb low is currently quite key support – a drop below this would potentially be a negative sign that the Jan 118.78 low could be retested. It is also a good initial risk level for any buyers on a break of the neckline plus 137.31 high.

Note: The GBP/USD and USD/JPY charts are also technically interesting at present – details in the next FX Trading Guide. [For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]