GBP/JPY Trying to Develop a Trend from a Price Bottom

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GBP/JPY Trying to Develop a Trend from a Price Bottom

After starting the year with a bearish note, the pound has been showing a lot of fight against the JPY in the second half of January. In February so far, GBP/JPY has turned it up again with a rally from about 175.50 to almost 182 by the end of last week (2/6) as we can see in the 4H chart below.

GBP/JPY 4H Chart 2/8
gbpjpy 4h chart 2/8
(click to enlarge)

The 4H chart shows a price bottom that was forming between roughly 175.75 and 180.30. Last week, after the Bank of England’s neutral statement, GBP/JPY continued the rally, and completed the price bottom. Note that price is also above the 200-, 100-, and 50-period SMAs while the RSI tagged above 70, both signs that the market could be turning bullish.

A drop back below 178 would make last week’s bullish breakout a false one. A false break against the prevailing direction of the trend (in the 4H chart) would be a strong sign of bullish continuation in the short-term.

Otherwise, last week’s bullish breakout has exposed at least the falling speedline seen in the Daily Chart, which could be around 184.

GBP/JPY Daily Chart 2/8
gbpjpy daily chart 2/8
(click to enlarge)

The daily chart also shows that price has bounced off the 200-day SMA and the 61.8% fibonacci retracement. This is a sign that the bulls are still in charge in the long-term, even though there has been a medium-term retracement from 2014’s high at 189.70.

Also, let’s roughly say that the consolidation was 400 pips (176-180). Then a bullish breakout projection of 400 pips would target 184. Look for resistance here, especially if the daily RSI also stalls around 60. However, to the downsie, we might want to limit the bearish outlook to 180, in case, the trend has indeed shifted back to the upside.

Now, since the prevailing trend is bullish, we should watch out for a break above 184 and the falling speedline as a sign of bullish continuation, which should expose the 189.70, 2014-high.

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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.