A potential rally might be in the cards for GBP/JPY, as the pair formed a clear double bottom chart pattern on its 1-hour time frame. The pair has tested the support around the 167.75 level a couple of times last week and found resistance at the neckline around 169.50.
Since the pattern is roughly 175 pips in height, the resulting upside break and rally could be of the same size. Before the uptrend is confirmed though, the pair has yet to make a valid break of the neckline resistance.
On the same time frame though, stochastic is indicating overbought conditions. This means that pound bulls have run out of energy at the moment and could use a quick retracement before resuming its climb. The oscillator is still pointing downward currently and may take a while before reaching the oversold zone and turning upward.
GBP/JPY Technical Forecast
Data from the UK has been promising so far, as yesterday’s claimant count change came in much stronger than expected and reflected a larger than projected decline in joblessness. In addition, the BOE minutes showed a unanimous vote in keeping bond purchases and interest rates unchanged.
An upside break from the 169.50 mark could take the pair up to the 171.25 level. Do take note though that yen pairs like this tend to respect psychological levels, which means that traders might take profits around the round numbers.
On the other hand, a selloff back to the double bottom could also be possible if risk sentiment is weak or if there’s a lack of catalysts to spur a breakout to the upside. If that’s the case, the pair might drop from the 169.00 area back to the 167.75 or 168.00 technical support.
There are no major reports lined up from the UK or Japan for the rest of the trading week so a bit of consolidation is also possible.
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