GBPJPY – History Repeating Itself?

A fundamental tenet of technical analysis is that history tends to repeat itself. The repetitive nature of price movements is attributed to market psychology; in other words, market participants tend to provide a consistent reaction, the collective psychology of fear vs greed to similar market events. An analog chart takes a historical price pattern and overlays it onto a current emerging price pattern which may (or may not) follow the same path as the historical pattern.

Each Monday, I review monthly charts for the major currency pairs primarily to determine reversals in long term trends. In another post, the GBPUSD chart suggests further downside and April 2015 support is being pressured accompanied by falling RSI and MACD.

The USDJPY chart below shows recent strength in the Yen versus the US dollar: the strong unbroken uptrend is slowing and the Bollinger Band mean is now being tested. RSI is falling and there is clear divergence with the MACD histogram which highlights the weakening trend.

Accordingly, this suggests there may be a similar trading opportunity in the GBPJPY as the Yen strengthens vs the US Dollar and the British Pound weakens. The monthly chart of the GBPJPY pair below shows an analog device by taking the 2007 pattern (highlighted in yellow) and placing it over recent price action. If the analog plays out there is an excellent swing trade opportunity.

The analog suggests that we will see a break below the lower Bollinger Band followed by an upward sloping wedge which is then broken to the downside as the pair heads towards 100.00 and possibly below. Be patient, wait for confirmation of a break to the downside and a possible consolidation prior to a large move.