GBP/JPY Clears the 200-day SMA

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GBP/JPY Clears the 200-day SMA

GBP/JPY is essentially signaling a bearish outlook. Let’s first go back to the bullish attempt last week that broke above a falling trendline, but then held below 174.00. The failure to clear 174.00 and the subsequent decline was an early warning that the bullish continuation scenario needs to be shelved. Anytime we have a strong bullish signal failing, we should consider the opposite scenario.

so far, the bearish scenario is starting to open up. GBP/JPY started the week with a gap lower, and fell to tag the 169.47 April low. This dip broke below the 200-day simple moving average (SMA), which adds another bearish signal.

GBP/JPY Daily Chart 9/8
gbpjpy daily chart 9/8

(click to enlarge)

We can see from today’s daily candle that there are buyers at the 169.47 low, as price sprang back above 170 to about 170.35 during the US session.

When we look at the 4H chart, we can see the RSI is oversold. There is a bullish reversal candlestick combination as well, so we should expect some near-term bullsih correction after the initial bearish move to start the week.

The rally would close the gap by the time it reaches 171.00. This would be the first place to monitor for resistance. Note that it is likely to be reinforced by a falling trendline from last week’s high just below 174.00.

We should also consider a the 171.60-70 support/resistance pivot area to provide resistance against the pullback. If price reaches this area, it would also be re-testing the 200-day SMA. Therefore if price can stay below this area, the bearish outlook remains in play.

A break above 172.30 might be needed to shelve the bearish outlook, and shift GBP/JPY back into a sideways mode with bullish bias.

Otherwise, after the current bullish attempt, there is still further downside risk toward 167.77 March low we can see in the daily chart.

GBP/JPY 4H Chart 9/8
gbp/jpy 4h chart 9/8

(click to enlarge)

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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.