Brexit Weighing Heavily on GBP Pairs
The GBP pairs continues to be heavily influenced by Brexit, which obviously makes them difficult to trade because one piece of positive or negative news can result in huge price movements in either direction.
Therefore if you do want to trade these pairs, it is probably best to concentrate solely on technical analysis, use strict stop losses to hopefully avoid any major wipeouts and be aware of when any Brexit negotiations or speeches are taking place.
With this in mind, one of the most interesting looking pairs right now is the GBP/JPY pair because after trending upwards for the last few months, we have seen some indecisiveness in recent weeks and a pennant has formed on the daily price chart:
Pennant Breakout?
Pennant breakouts can be very profitable to trade because many traders will spot the same pattern and will trade the subsequent breakout, and so it might be worth watching for a possible breakout on the GBP/JPY pair.
A breakout to the upside would see a resumption of the previous uptrend, and if the price could close strongly above the 150.00 level, which is a major round number and a big psychological resistance level, there is the potential for the price to move higher and test the next resistance level at 154.00, which is a previous high from April.
A breakout to the downside would see a resumption of the long-term downward trend that has been present throughout 2018, and we could potentially see a much stronger price move.
Using fibonacci retracement levels as a guide, a 50% retracement of the previous upward trend would give a price target of 144.81, whilst a 61.8% or 100% retracement would give price targets of 143.65 and 140.00 respectively.
Alternatively, another popular strategy to use when trading pennant breakouts is to derive your target prices from the width of the pennant (from the high to the low).
So regardless of the direction of the breakout, your exit price would be equivalent to the width of the pennant, which in this case is around 315 points, or 2 x the width of the pennant if you are confident of a big move, which would be around 630 points.
Final Thoughts
As always, I am not recommending any trades or offering any signals. These are just my own personal thoughts and opinions.
I just want to highlight a pennant that has formed on the GBP/JPY pair and discuss pennant breakouts in general because these can be very profitable when you get the right set-up.
Furthermore, although not all of these subsequent breakouts turn out to be profitable, there is the potential for a big price move in this instance because any major Brexit news could be the catalyst that causes the price to break strongly out of its narrow trading range.
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