GBP/JPY is trading in a mini-triangle since the 9/23 session. As we begin a new week (9/29), price is right in the middle of this coiling, consolidation pattern, as shown in the 1H chart below:
Note the 200-, 100-, and 50-hour simple moving averages (SMAs) converging. This reflects the sideways direction of the market after a rally.
Bullish breakout scenario:
Now because the prevailing trend is bullish, let’s examine the bullish breakout scenario. A break above 178.20 will likely take GBP/JPY above the triangle and signal a bullish continuation outlook. If the RSI pushes above 70, that would be an even stronger sign that the pair is ready to take off. The 178.73 high would be the immediate, near-term target and resistance. Now if we get a pullback after the triangle breakout, a bullish market should find support around 178.0. A break below 177.50 at that point would not only invalidate the bullish outlook but introduce a bearish correction outlook.
(click to enlarge)
Bearish correction scenario:
In the 4H chart, we can reduce the recent consolidation essentially to a range between 176.64 and 178.73. Now if price falls below 177.50, the focus will first be toward the 176.64 low, with downside risk toward the 174.65-175.00 area, near which the 100-period SMA resides in the 4H chart. We would also be near a previous resistance around 174.65, which could also provide support in a bullish market. Note that the 50% fibonacci retracement level is at 175.02.
The last line of defense for the bullish continuation outlook is in the 173.68-174 area. Here we have a previous resistance in early September, the 200-period SMA in the 4H chart, and the 61.8% retracement level.
Bullish continuation bias:
We should note that in the 4H chart, the moving averages and price action reflect a bullish market, and the RSI also reflects maintenance of the bullish momentum since the rally to and retreat from 180.74. A break above 178.73 thus opens up the 180.70 high with implication of a possible break into new highs on the year above that.
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