GBP/JPY Uncoils out of a Triangle and Confirms the Breakout

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GBP/JPY Uncoils out of a Triangle and Confirms the Breakout

Triangle Breakout: GBP/JPY has been trading in a triangle pattern since last week after falling to 177.15. It made a bullish swing to 181 from that low, and started to coil in a symmetric triangle seen in the 1H chart.

GBP/JPY 1H Chart 3/24
gbpjpy 1h chart 3/24
(click to enlarge)

Bearish Signs: Looking at the 1H chart, we can see price push below the triangle support. GBP/JPY has also held below the 200-hour simple moving average throughout the triangle formation, which reflects maintenance of some bearish bias within this consolidation pattern. Now, with price back below the 100-, and 50-hour SMAs as well, GBP/JPY has revived the bearish outlook in the short-term.

Pullback Confirmation: During the 3/24 US morning session, we saw a pullback that respected the triangle apex area as resistance, thus confirming the bearish breakout and signaling pressure towards the 177.15 low, with risk of extending lower.

GBP/JPY Daily Chart 3/24
gbpjpy daily chart 3/24
(click to enlarge)

Market in Consolidation: The daily chart shows that GBP/JPY is in a consolidation mode in the medium-term, after making a 2014-high at 189.71. Price failed to revive the bullish outlook in February, and has been retreating in March.

Bearish Correction Scenario:
If price breaks below the 177.15 low and below the 177 handle, it would finally break below the 200-day SMA. Then, we should expect GBP/JPY to test the 175.50-176 lows on the year made in January.

A break below 175.50 would open up the 170 psychological handle. If this scenario materializes, GBP/JPY would have turned a bullish trend since 2012 into a sideways market. It would still have to break below a common support in 2014 (as in October) around 168 before opening a bearish outlook for the medium to long term.

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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.