GBPJPY: An In-Depth Analysis Of What To Expect For The Next Months
Brexit is still a concern as long as it is not resolved in one way or another. With the next important event in the Brexit process occurring this Tuesday, January 15th, there is more uncertainty surrounding what is to happen. Even more as the what will happen to the Pound as a result of the Parliament vote.
The Pound is basically neutral waiting on the parliamentary vote on the Prime Minister's Brexit plan the first official vote coming this Tuesday. But leading up to this first parliamentary vote, the Pound has been taking a pounding, pardon the pun. So it could be that the market has already priced in the expectations of this vote and the current Brexit agreement being rejected.
What that would mean is that if the agreement were to get an approval, the Pound, and of course the Guppy, would explode upwards. On the flipside, if the vote were to go against the current agreement, then the Pound would fall again but probably not by that much as much negative sentiment has already been priced in. So a "no" vote would not be that much of a surprise to the markets.
Besides, even should there be a "no" vote this Tuesday which is what is expected, under the rules of the parliament, the Prime Minister may force a second or even a third vote. And the other option is that a second Brexit referendum could be called. If that were to happen, most would expect the Pound to explode since the expectations are strong that any second referendum would reverse the first one that voted for the Brexit.
So how does that look to play out on the GBPJPY charts? What does the chart have to say as to what might happen? Let's take a look.....
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The Long Term View: Monthly and Weekly Charts
GBPJPY has been in a corrective phase after a strong down from June, 2015 to Oct, 2016. That drop included Brexit referendum in June, 2016 which sent prices down to the Sep-Oct, 2016 lows around 124. . Ever since then, the Guppy has been just moving sideways. At least on a macro scale anyway. But within that macro sideways movement, we've seen some pretty choppy price movements heading both up and down. That is, until that flash crash last week. But that "flash crash" was attributed much more to the Yen than it was the Pound.
That flash crash is seen on the above charts as a large wick on a pin bar on the weekly chart. You can also see the same large wick on the monthly chart as well but keep in mind that on the monthly chart, that bar has yet to close. If in the coming weeks, prices were to reverse and head back down, then that wick may not be as big or could be eliminated entirely on the monthly basis.
In any case, that large wick on the weekly chart does represent as "V-reversal" on the lower time frames and V-reversals are very bullish price action. What's important will be how prices follow through on that V-reversal this next week.
But if you look on my long term charts above, I am expecting that prices will head on higher in accordance with the bullish price action. But more importantly, my projections are that we will continue to see prices head sideways for a long while. Could be months. Could be years.
The Macro View
To have my wave count make sense, let me start with that very large impulsive drop down from June, 2007 all the way down to Sep, 2001. I labeled that impulsive drop as a completed wave (5). If that is correct, then after a completed impulse wave, we expect there to be a 3-wave correction. After we saw that completed wave (5), another impulse wave heading back up occurred. Following our wave logic, that impulse wave up following an impulse wave down can only be labeled a wave A since it was also a 5 wave impulse wave.
Following that wave A, we saw yet another impulse wave back down. That can only be labeled the wave (a) of the larger 3-wave wave B. And that is where prices are now: within that wave B. Eventually, that wave B would have to end at/near the wave (5) lows. But that would be years away and many things can change from now to then.
Breaking Down The Wave B
I've labeled that impulsive drop down from Jun, 2015 as a wave (a). That completed wave (a) is the first of the 3-waves corrective wave B.
The initial move up from that wave (a) low I've labeled as a completed lower degree wave a of the wave (b) of the higher degree wave B that I am breaking down here. When that wave a ended, we saw prices drop in a wave b of (b) which may very well have ended with the "flash crash" spike low that happened last week. That I labeled as the now completed wave b. Which of course would mean that we need to see a wave c if this labeling is to be correct. That wave c would need to head up to complete the larger degree wave (b). And as you can see, I am projecting that the wave (b) would end at/near the MAJOR Down Trend Line (DTL).
The first pattern that I want to draw attention to is an AB=CD pattern. These patterns are very common in corrective waves such as in the wave b's. And even more common is that the AB=CD patterns will end between the 1.13 -2.628 extension of the BC leg. The most common would be the 1.272 extension.
What you see in the above charts is a POSSIBLE AB=CD pattern that would be occurring in the wave (b) according to my wave count. In the top chart, you can see that the length of the wave a if projected from the spike low as the wave c as an AB=CD pattern would end right at/near the MAJOR Down Trend Line (DTL).
In the second chart, you can see the fib measurements shows that this same pattern if projected to end at that MAJOR DTL would also be at/near the 1.272 extension. The most common AB=CD extension.
In the above chart, you see that the wave a unfolded in a contracting diagonal pattern which of course when done, led to prices dropping. Then the wave b if it has really ended has unfolded in a expanding diagonal pattern. When diagonals are completed, prices will head in the opposite direction. That expanding diagonal would appear for all intents and purposes to have ended with that flash crash and V-reversal weekly pin bar.
If this sideways pattern is to continue, then what I would expect to see is that the wave c will also unfold in some form of diagonal pattern or bearish channel. And that is what I'll be looking for to happen.