GBP/JPY Price Analysis: Higher highs on the cards, or bearish breakout?

• GBP/JPY bulls eye a crack at a higher-high if the structure can hold to the downside and a subsequent follow-through occurs.
• On the flip side, a swing trading opportunity could evolve if the price fails to get above the now-counter-trendline, tested in recent trade (pre-Tokyo open).

The price of GBP/JPY has been consolidating at a compelling level for a bullish day trade opportunity.

As can be seen on the hourly chart below, the price has been tinkering with an extension to the upside for a 1:2 risk to reward ratio opportunity.

However, the bears are still in play with the price being in a supply area and slipping below a short term supporting trendline.

Hourly chart

More on this lower time frame trade set-up lower down...

Meanwhile here is a snapshot of the market's positioning on a longer-term time scale to help gauge where the trade potential and risks lie.

Daily chart

As can be seen, the price is at a juncture that is bullish above and bearish below in a supply area.

This makes this long-side trade set-up slightly higher risk and a reduced level of risk should be applied, perhaps half.

So, if the trader risks usually 1%, 0.5% might be more appropriate until break-even where additional risk can be added towards the target.

In the chart below, a 4HR picture shows how if the price breaks to the downside on a convincing retest of the counter trendline, then a reverse head and shoulders pattern will be in the making.

That is ultimately bullish longer-term but would invalidate the current long-side trading opportunity.

On a short-side swing trade targeting the downside, the price can target the neckline of the W formation (in the vicinity of the head of the 'Head and Shoulders' pattern). 

15-min chart long trade set-up

Currently, at the time of writing, the price has actually fallen below the trend line which now makes the long trade entry less likely.

The price will have to move back above the trendline support, now the counter-trendline or, aka, resistance, and above the 21 moving average with RSI above 50.

The entry can happen if the upside structure is broken and then retested on entry.

The Stop Loss stays below structure and should be moved to break even as soon as new upside stricture, turned support, forms as the price heads towards the target. 

On the short side, however, the downside trade towards completion of the Head and Shoulder's right-hand shoulder will look something like as follows...

Bearish swing trading set-up

This strategy can be implemented on a short-term time frame to start with, the 15-min chart would be ideal.

The trader will be looking for a restest of the counter trendline to hold on trade entry with the stop loss above structure, targeting the recent support.

If the major support structure gives out, the trader may wish to add to the trade targeting a swing trade opportunity to the shown target,

The second half of this swing trade can be administered from a longer-term time frame, such as the 4-hour chart in bearish conditions, such as below the 4-hour 21 moving average, resistance structure and with MACD below zero.