The pound seems to have found a footing this week. Even with the uncertainty from the Scottish independence vote looming. Today, we had some stronger than expected UK data, and the BoE meeting minutes, which showed 2 votes for a rate hike, but 7 firmly against it. Meanwhile, the Japanese yen continues to be weak across the board as it continues its stimulus measures amid weaker data in Q3.
The GBP/JPY was bullish after a failed bearish attempt last week. The daily chart shows that the pair broke below the 200-day simple moving average and cracked the 170.00 handle to begin the previous week. However, price has since rebounded, not only invalidating the bearish breakout, but suggesting a bullish continuation outlook after a pullback respected 173.00 as support. Today, price looks poised to test the 2014-high at 175.36.
If price can not break above 175.36 and falls back below 173.00, then we can say the pair is back in consolidation mode, but at the moment, it looks ready for bullish continuation.
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If price breaks above 175.36, where will it go? One projection method would be to take the width of the 2014 consolidation, and project it in the direction of the breakout. This is not an exact science so feel comfortable with an estimate. The low of the year was near 164, and the high would be around 175, giving us about a 1100-pip range. Let’s be conservative and round down to 1000-pips. Even this suggests an expectation that GBP/JPY can rally to the 185-186 area in 2015.
When we look at the monthly chart, we can see GBP/JPY rallying against the 2007-2009 dip from 251.11 to 118.90. Note that 50% retracement is at 185.00, which is right at the neighborhood of our breakout projection.
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