The GBP/JPY has made a fresh high on the year last week at 186.13. The 4H chart shows that this came after a bullish breakout of November’s consolidation range roughly between 181.09 and 184.32.
Note that the technical conditions 4H chart are all bullish.
1) Price is above the 200-, 100-, and 50-period simple moving averages and the SMAs are sloping up and in bullish alignment.
2) Price is holding above a rising trendline.
3) The RSI has tagged above 70 and held above 40, which reflects persistent bullish momentum.
Rising Trendline: If the rising trendline comes into play today, GBP/JPY should make a move towards the 186.13 high with strong risk of breaking higher.
Double Top: We are also seeing a double top forming as price failed to break 186.13 this week. It seems like a battle between the double top and the rising trendline, and so far, the rising trendline is winning.
Rising Trendline vs. Double Top:
If price falls back below 183.95, we have a double top. and a break below the rising trendline. The thing is, the prevailing trend would still be in play, so we should be careful not to call a top so soon.
After a double top, we are likely to see support between 183-183.50. This is a previous support/resistance area and involves the 100-, and 50-period SMAs in the 4H chart. We should also expect support when the RSI falls to 40. Then, a pullback that pushes back above 185.10 would invalidate the double top and suggest bullish continuation.
However, if price stalls below 185.00 and respects the double top while the 4H RSI starts to hold below 60, we can have a bearish outlook towards the 181.09 low from November’s consolidation range. Even then, we are considering consolidation in the short term in the context of a bullish trend in the medium to long-term.
A look at the monthly chart gives us perspective. This doesn’t tell us whether we should anticipate a double top or the trendline to hold, but it does tell us that the medium and long-term trends are up so if we DO have a bearish swing in the short-term, expect buyers to scoop USD/JPY up as it heads towards 190, psychological level and common support in 2004-2005.
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