GBPJPY recently made a break from the falling trend line, an early signal of currency trend reversal. Price found resistance at the 174.00 major psychological mark though and is in for a correction.
Using the Fibonacci retracement tool on the breakout move and possibly the first impulse wave indicates that the pullback could last until the 50% Fibonacci retracement level, which lines up with the broken trend line. This is also close to the 172.00 major psychological support level.
Stochastic is still heading lower, indicating that selling pressure is still present before the currency trend reversal plays out. Once the oscillator crosses out of the oversold area, buying momentum could return and push GBPJPY back up.
Currency Trend Reversal Forecast
If price finds support at the broken trend line or the Fibonacci retracement levels, GBPJPY could make its way back up to the previous highs at 174.00 or higher. The next resistance levels are at the 175.00 handle and at 176.00 if the currency trend reversal turns into a strong and prolonged uptrend.
On the other hand, a break below the trend line and the Fib levels would show that the currency trend reversal signal was a false one and that the longer-term selloff might carry on. This depends on how UK data and Japanese economic events turn out this week.
Construction PMI has been stronger than expected for the UK in August and the services PMI is due today. While analysts are expecting a small decline, a pickup in expansion could set the currency trend reversal in motion and lead to early gains for the pound against the yen.
Meanwhile, the BOJ statement lined up for tomorrow is already drawing easing expectations and is leading to yen weakness for now. Actual easing or downbeat remarks could mean more losses for the yen, which might drive GBPJPY to new highs.
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