GBP/JPY Signals Another Bearish Correction Swing

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GBP/JPY Signals Another Bearish Correction Swing

False Bullish Breakout: GBP/JPY has been consolidating since rallying from 181.58 to 187.55 in mid-December. Then it traded in a tight range between 186.48 and 187.55. Last week, there was a brief crack above 187.55 but the breakout was weak and unclear. More importantly, the subsequent dip broke below the middle of the range around 186.60, invalidating the bullish breakout.

GBP/JPY 4H Chart 12/30
gbpjpy 4h chart 12/30
(click to enlarge)

Bearish Breakout: When we have false breakouts, we should anticipate a breakout to the opposite side. This was the case for GBP/JPY, which started this week with a break below 185.84.

Pullback/Confirmation: There might be some support in the 184.50-185 support/resistance pivot area, especially if the 4H RSI dips below 30. If the current bearish breakout is to extend, the 186.45-187 area should now become resistance against a subsequent pullback.

Support Levels: If the broken range can act as resistance, then we can look for further downside risk towards:
1) 183-183.50 (support area, Dec. 16-17, 50-day SMA)
2 181.60-182 (December lows)
3) 180.85-181.10 (support/resistance pivot, Nov-lows)
4) 178.70-80 (previous common resistance in Sept., 100-day SMA

Support 3), and 4) can be seen in the daily chart below.

GBP/JPY Daily Chart 12/30
gbpjpy daily chart 12/30
(click to enlarge)

Bullish Trend, Bearish Correction: The daily chart shows that the market has revived a bullish trend in October after consolidating most of the year. But before 2014, the GBP/JPY was also bullish. If the current bearish correction swing reaches the 178.70-80 area, it  would complete an ABC correction.

Secular JPY-Bear Market, Buy GBP/JPY on Dips: It is important to realize that the Japanese Yen might be in a secular bear market (5-25 years) since 2011. So, if we see some short to medium-term bearish correction, as we are expecting after the start of this week, we should look for buyers at key levels, especially when the daily RSI approaches 40. If the daily RSI does hold above 40, it would reflect maintenance of the bullish momentum, and keep the bullish trend alive.

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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.