GBP/JPY has been choppy, but bullish in 2014. In July, the pair has been giving back some of the gains rallying throughout June to a fresh high on the year at 175.33.
1) We know GBP/JPY was bullish at least at the turn of the year. The prevailing bullish trend has not been broken. 2014 price action has been more or less in an ascending triangle, with higher lows after the initial dip, and relatively common highs. This showed bullish bias within the 2014-consolidation. June’s price action may have revived the bullish trend by pushing above the triangle, and above the 2013- high.
2) Price is trading above the 200-, 100-, 50- day SMAs.
3) The RSI has pushed above 70, and has been holding above 40. If it can hold above 40, it reflects development of the bullish momentum. In fact, throughout 2014, the RSI has mostly held above 40, which reflects maintenance of the bullish momentum established in 2013.
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With bullish trend intact and restarted in the daily chart, we should anticipate buyers waiting for the end of the current ABC correction development, which we can see more clearly in the 4H chart.
1) Bullish momentum is lost, and perhaps there is a slight bearish momentum developing in the 4H chart as the RSI dipped almost to 30, and has stayed below 60 before another push toward 30.
2) Price fell below the 200-. 100-. 50-period SMAs in the 4H chart.
Here are a couple of levels where we should anticipate buyers:
1) The 172.40-172.50 area: The 50% retracement – of June’s rally from 169.53 to 175.35 – is at 172.44. The rising trendline from the 2014-low at 168.87 might also reinforce the support around 172.45 if price gets there within this next couple of sessions.
2) 172.15: An ABC correction with C=A would project the current downswing toward 172.15. We might crack that 2014-rising trendline, but with such a choppy mode, the break should not be significant.
Look for buyers on these support factors especially if the 4H RSI dips shows a bullish divergence around 30.
61.8% retracement: A break below 171.75 would mean a retracement beyond 61.8%, which take away some of the bull’s confidence. It can therefore reverse June’s rally and put pressure toward at least the 170.00 handle.
At that point we will have to see how price reacts to the 170 mark. A break below shows the market is still in consolidation, while a hold above it shows that the market is still bullish, albeit in a very choppy manner.
If the market indeed holds the bullish trend and GBP/JPY marches on, there won’t be any key resistance levels until the 180 psychological handle.
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