GBP/JPY Awaiting Breakout as it Consolidates at Key Support

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GBP/JPY Awaiting Breakout as it Consolidates at Key Support

The GBP/JPY is trading at the crossroads and you will see why. First of all, in the 4H chart, we can see a market that is consolidating after a bearish run.

GBP/JPY 4H Chart 1/30
GBP/JPY 4H Chart 1/30
(click to enlarge)

After making a low at 175.77 in mid-January, GBP/JPY rallied only to be rejected at 180.27. A second attempt to break below 175.77 failed, forming a possible double bottom. The momentum according to the RSI is still slightly bearish, and price action also has a slight bearish bias despite the failed attempt to break 175.77.

In the 4H chart, we can say that the market is bearish-neutral, with some emphasis on the bearish component since the prevailing trend here is bearish.

A break below 175.77 should open up another leg to the downside. (We will disucss downside risk a little lower when looking at the daily chart. But first, it has to clear the middle of the recent range, which is at 178. Today, price hovered above this central pivot, but the support refused to fold, so the bearish outlook was kept at bay.

To the upside, a break above 179.00 puts some near-term pressure towards the 180-180.27 highs. A break above that opens up a bullish outlook, not only in the short-term, but one that might continue the uptrend since 2012. Let’s look at the daily chart below to assess the upside risk.

GBP/JPY Daily Chart 1/30
gbpjpy daily chart 1/30
(click to enlarge)

Bullish Bias: While the 4H chart shows a bit of bearish bias, the daily chart shows bullish bias. Indeed price has been bullish since 2012, although it was relatively flat in 2014, until Q4. Now, the reason we can say there is still bullish bias is because price is still holding above the 200-day SMA and the 61.8% retracement at 176.30, albeit briefly breaching this level.

Bullish Scenario: This is why the GBP/JPY is at the crossroad. If price can clear the 180.30 area, it could be continuing the uptrend since 2012, and thus expose the 189.71 high. But first, we might want to limit our bullish outlook to the 184.00 area, where price would be challenged by a falling speedline, the 50-day SMA (just below 184), and a support/resistance pivot area that might be a tad higher.

Bearish Scenario: A close below 176.00 however, should signal further bearish correction. While, this might expose the 2014-low at 168, we should probably first limit the bearish outlook to the 78.6% retracement level around 172.65.

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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.