GBPJPY Getting "Turnt Up"

As my college-aged cousin informed me this weekend, getting “turnt up” is the latest slang that kids are using these days to describe partying. Personally, I was still catching up to “putting on the ritz” to attend a classy “soiree.” Regardless, his comment prompted me to scan my forex charts and see which currency pair is getting “turnt up” the most, which naturally led me to GBPJPY.

Of course, the Japanese yen was sold off strongly across the board last week, with the widely-followed USDJPY hitting a new 6-year high above 107.00. Meanwhile, the pound promises to be one of the most interesting currency pairs this week as Thursday’s Scottish independence referendum is still too tight to call (for more on the referendum, as well as its implications for GBPUSD, EURGBP, and the FTSE index, check out our special research report, “Scotland Votes: What Does This Mean for Markets?”).

From a longer-term technical perspective, GBPJPY looks very bullish. As the weekly chart (below) shows, the pair has been consolidating in a tight range near 170.00 since last December. This prolonged sideways price action has allowed the 200-day moving average (approximated by the 40-week MA in the chart below) to catch up to price and provide support.

After last week’s gap to a new 4-month low, bulls stepped in to buy aggressively throughout the week, creating a large Bullish Engulfing* / Bullish Marubozu Candle** on the weekly chart. These candlestick patterns show an abrupt shift from selling to buying pressure and suggest that we could see further gains in the coming weeks.

The secondary indicators are also constructive. The long consolidation caused the RSI to pull back from overbought territory, potentially clearing the way for another leg higher. At the same time, the MACD indicator is showing nascent signs of turning higher (dare I say getting “turnt up?”) above the 0 level, favoring a potential return to bullish momentum.

Overall, GBPJPY bulls will be treading carefully ahead of Thursday’s Scottish independence referendum, but if we see a win for the pro-unity party, it would serve as a green light GBPJPY bulls to drive the pair through 175.00 resistance. Above that barrier, there is nothing but blue skies above for hundreds of pips. Of course, a “Yes” vote to independence could finally cause GBPJPY to “turn down” for a big hangover; in that case, a pullback to at least the 170.00 level would be likely, and in time, the pair could easily drop to the mid-1.60s.

*A Bullish Engulfing candle is formed when the candle breaks below the low of the previous period before buyers step in and push rates up to close above the high of the previous candle. It indicates that the buyers have wrested control of the market from the sellers.

** A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.