1-Month Rally Erases 4-Month Decline: GBP/JPY has been bullish since making a low on the year at 174.87, which was made mid-April. A month later, a couple of sharp swings have brought the pair to new highs on the year. GBP/JPY is now threatening to test the 2014-high as we can see in the daily chart.
A Bearish Scenario: Now, in the daily chart we can see that price started to consolidate last week. If we see a break below 186.60, we might see a pullback towards the 184-185 area. We should expect some support in this previous resistance area. A break below 184 would open up the 181.00 pivot.
Bullish Scenario: A break above 188.60 however would open up the 189.71, 2014-high. With such a sharp bullish trend on its back, the bullish breakout would have upside risk even beyond 189.71, though the 190 level could be psychologically sticky level for the short-term.
Let’s take a look at the 4H chart below.
Bullish Bias: The 4H chart suggests that we should anticipate the bullish breakout more than the bearish one. Price is above the 200-, 100-, and 50-period SMAs and the RSI has held above 40 after tagging above 70. These are all signs of a persistent uptrend.
Support/Resistance: Now, if price does falls below 186.60, we noted the support in the 184-185 area. Note that the 184.14-184.47 support/resistance pivot area is within that larger zone and deserves attention within the global session.
Examining the Bearish Pullback Scenario: Let’s say price falls below 186.60 but bounces off of the 186 handle, which is where the 50-period SMA resides at the moment. Then, if price can hold below 187.60 (center of the current range), then we should have more confidence anticipating the short-term bearish pullback towards the 184.14-184.47 area.
But if price cracks 186.60 then rebounds above 187.60, we should continue to look for a test of 189.71 and the 190 handle this week.
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