GBP/JPY – A Bullish Breakout of 2 Different Magnitudes

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GBP/JPY - A Bullish Breakout of 2 Different Magnitudes

GBP/JPY has been bullish in February since reaching a low on the year at 175.50. In the 4H chart below, we can see that even though GBP/JPY did make a new low when it reached to 175.50, the price action since mid-January has been consolidation. Then, after a bullish breakout, the market showed respect to this price bottom.

GBP/JPY 4H Chart 2/24
gbpjpy 4h chart 2/24
(click to enlarge)

The 4H chart shows that after the price bottom, GBP/JPY again consolidated under 184.20 and above roughly 181.50. Today, traders carried pound-yen above this consolidation, extending this month’s uptrend. Then after the break above 184.20, price was unable to reach 185 and started to pullback.

So far, the pullback has been weak, and the bullish trend still looks dominant in the 4H chart. However, if price pulls back below 183.00, we should question whether the GBP/JPY is exhausted, especially if the RSI falls below 40, which would reflect loss of the prevailing bullish momentum.

In this scenario, the pressure will be on the 181.50-181.80 support area. A break below this ends the bullish correction. Then a break below 179.40 should revive the prevailing downtrend.

GBP/JPY Daily Chart 2/24
gbpjpy daily chart 2/24
(click to enlarge)

When we look at the daily chart, we can see that the “prevailing downtrend” mentioned above refers to the move from December and 2014-high of 189.71 down to 2015’s low of 175.50. However, when we look at the higher time-frames and zoom out, we can see that the prevailing trend in the long run is bullish. GBP/JPY has been bullish since bottoming at the end of 2011. (It took a break during most of 2014).

Bullish Signs: Also, price action in the daily chart bounced off the 200-day SMA, and the 61.8% retracement level around 176, which represents maintenance of the long-term bullish mode.

Last week, price crossed over the moving averages and has since been flirting with a falling speedline from December. Therefore, if the current breakout we saw in the 4H chart is confirmed by the pullback holding above 183, we have a bullish continuation signal in the daily chart as well, which opens up the highs around 187.50 and the 2014-high at 189.71.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.