Watching the Daily GBP/JPY Channel

06/08/2010 12:01 am EST

Focus: FOREX

James Chen

Chief Technical Strategist, FX Solutions

Price action on GBP/JPY, a daily chart of which is shown, has been following a leg of a long-term overall downtrend for about a year now.

Click to Enlarge

(Price on 1st pane, Slow Stochastics on 2nd pane; horizontal support/resistance levels in yellow; uptrend lines in green; downtrend lines in red; chart patterns in white; 50-period simple moving average in light blue.)

This downtrend leg is framed by a rough parallel downtrend channel. Recently, within the context of this downtrend channel, price has been in the process of making a bullish correction after hitting a 15-month low around 126.70 in late May.

This correction is represented by an intra-channel uptrend support line. Within the context of the strong current downtrend, a key bearish trigger to watch for would be a strong breakdown below the noted intra-channel uptrend line.

A near-term breakdown and close below this line, and below the key 132.00 support/resistance region, could potentially prompt prices to begin re-targeting the noted long-term support low in the 126.70 price region.

By James Chen, chief technical strategist,

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