Since crossing above the 200 day MA back in Oct 2012, GBPJPY has gone on to trade at its highest level since 2008.
Being paired against a volatile safe haven such as the Yen means that when fear dominates the markets, GBPJPY falls hard and fast. On the flip side of that coin however, is that once fear disappears and confidence is restored, GBPJPY can turn around at break-neck speed to resume its trend. Having shed over 1300 pips these past weeks I am beginning to wonder if we are about to see such a turnaround.
Technically it has respected the November '12 trendline, with the recent sell-off confirming the trendline itself with a 3rd touch. The indicator below shows a DE trended price oscillator (DPO) which simply measures the difference between close price and a 200 day MA. It can provide crude overbought/oversold levels and, curiously, we can see that the first two times GBPJPY crossed below the 200 MA by around 30 pips it generated a fantastic buy signal. At time of writing we saw a similar move below the 200 day MA three sessions ago, and having respected the Nov '12 trendline, pondering if we will see a miraculous turnaround for a third time and resume the bullish trend.
With Chinese markets now closed for the remainder of the week it removes any uncertainty that Chinese action that has produced global volatility these past few weeks. I also suspect that, due to G20 meetings and the Chinese visit to Washington pending, we are unlikely to see any market-moving actions from PBoC. This does raise potential for JPY outflow and for GBPJPY to strengthen.
How GBPJPY generated a buy signal using this one weird trick...
Whether this signal works for a third time around only time will tell but, whilst it remains above the November '12 trendline, is likely to return above the 200 day MA again.