The GBPJPY ended a strong sell-off which took this currency pair from its resistance area, marked in light grey in the above H4 chart, down into its support area visible in light blue. The Bollinger Band Indicator confirmed the sell-off and dropped together with price action. The lower band reached the bottom of its support area, but the GBPJPY was able to recover from its lows and is now trading between the lower band the middle band above its support area.
This currency pair is now likely to face a short-covering rally as forex traders may decide to realize floating trading profits by closing existing short positions. A breakout above the middle band is likely to result in the addition of new new long positions and drive the rally until the GBPJPY can reach its resistance area. The upside potential is very attractive while the downside risk is limited from current levels.
Forex traders are recommended to enter long positions at 185.000 and below this level in order to take advantage from the expected short-covering rally. Conservative forex traders should wait for a breakout above the upper band of it Bollinger Band indicator before entering their long positions. A take profit target of 188.750 has been set for a potential trading profit of 375 pips on the H4 Chart. More buy orders are expected after the GBPJPY completes its breakout above the middle Bollinger Band.
Forex traders should protect this trade with a stop loss level at 184.000 for a potential trading loss of 100 pips which will result in a Risk-Reward (RR) ratio of 3.75.
GBPJPY
Long @ 185.000
TP @ 188.750
SL @ 184.000
RR: 3.75
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