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  • GBP/JPY’s volatility gauge has dropped to the lowest level since 2014.  
  • A low-volatility period often ends with a violent move on either side.  

GBP/JPY’s ongoing consolidation could soon end with a violent move, as a key volatility gauge has hit five-year lows.

The currency pair is lacking a clear directional bias since Oct. 18 and has been largely restricted to a range of 141.50-139.00.

As a result, the daily chart Bollinger bandwidth, a volatility gauge, has dropped to 0.01, the lowest level since May 2014. A period of low volatility often paves the way for a big move on either side.

Note that the low-volatility consolidation is preceded by a near 90-degree rise from 130 to 141 and  the ongoing range play  could be due to bulls having a breather. Put simply, the big move could happen on the higher side.

Acceptance above 141.50 would open the doors for 143.77 (April 26 low). The outlook, however, would turn bearish if the consolidation ends with a breakdown below 139.00.

Daily chart

Trend: Neutral

Technical levels