GBP/JPY – False Breakdown and Bullish Continuation Targets

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GBP/JPY - False Breakdown and Bullish Continuation Targets

Consolidation within Uptrend: Since making a low on the year at 174.87, GBP/JPY has been rising sharply. The 4H chart shows a couple of bullish swings, which found resistance last week at 188.60. It has been consolidating since.

GBP/JPY 4H Chart 5/21
gbpjpy 4h chart 5/21
(click to enlarge)

False Breakdown:
There was a range between 186.68 and 188.60. During the 5/19 session, GBP/JPY broke below this range and the 50-period SMA, while the RSI fell below 40. This all reflected a loss of strong bullish bias and loss of the prevailing bullish momentum.

However, as soon as the pair tagged 186, it rebounded with the same intensity as the breakout candle, bringing price back above the 50-period SMA. While the RSI has not shown revival of bullish momentum. Price action is signaling bullish continuation even before breaking above the 188.60 resistance.

The false break to the downside is often a sign that bears are weak in this market, which means this is still a bull’s market in the short to medium-term. With a break above 188.60 pending, what is the next target for GBP/JPY?

GBP/JPY Daily Chart 5/21
gbpjpy daily chart 5/21
(click to enlarge)

Bullish Continuation Breakout:
The price action seen in the daily chart reflects a bullish continuation breakout in the beginning of May, after a 6-month consolidation. We even had price test the broken trendline and the cluster of moving averages as support, after which, the bullish continuation mode was confirmed.

2014-High in Sight:
Now, GBP/JPY looks poised to test the 189.71 high from December, which is also the 2014-high. When we look at the long-term chart (monthly), we can see that there is even more upside risk above 189.71.

Bullish Continuation Targets
First of all, we should note that there has been an uptrend since 2012, so the upside risk is in-line with the existing mode. Second, above the 2014-high, the next key area to watch for resistance will be in the 199.79-200 area, which includes the 61.8% retracement of the 2007-2008 plunge, as well as the psychologically sticky level of 200.

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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.