GBP/JPY has been moving inside a range for more than a couple of months already and it looks like the pair is gearing up for a test of resistance at the 173.00 major psychological handle. A strong selloff from this area could lead to a test of support at the 170.00 mark.

Take note though that stochastic is already heading down from the overbought zone, which means that sellers are already starting to pile in. This could lead to an early selloff from its current levels even before GBP/JPY reaches the top of the range.

Shorting at 173.00 with a 100-pip stop and a target of 170.00 could yield a 3:1 return on risk. Adjusting the stop to entry once price tests the middle of the range is a good way to reduce risk.

By Kate Curtis from Trader’s Way