As mentioned in a previous post, there is a very clear head and shoulders pattern on the weekly GBP/JPY chart. A head and shoulders pattern often suggests a reversal is coming. We have certainly seen a lot of volatility in the global stock markets on credit fears. The dow and the yen pairs have a considerable degree of correlation, this is due to the fact there is a lot of borrowed yens that have been place in the stock market. If the carry trades do unwind a big fashion, we would probably also see the dow lose a lot a ground too.
If we take a look at the chart above, We can a February low of 221.23 and the July low of 219.28. These points will probably act as support for the pair. If these are broken there could potentially be more downside to come, possibly even a lot more.
