GBP/JPY appears to be starting the fourth leg of its wave pattern, as the latest Elliott Wave analysis hints at a possible pullback to the rising trend line support on the 1-hour forex time frame.
Price has had trouble breaking clearly past the previous highs around the 173.50 minor psychological resistance, as a bearish divergence has formed on the same time frame. Notice how stochastic formed lower highs while price made higher highs, indicating a trend reversal for the short-term.
A bounce off the trend line, which lines up with the 172.00 to 172.50 psychological levels and the 61.8% to 50% Fibonacci retracement levels could lead to a test of the former highs or the creation of new ones beyond the 174.00 handle.
Earlier today, the BOE meeting minutes showed that most policymakers supported BOE Governor Carney’s hawkish bias in suggesting that interest rates must be hiked sooner rather than later. The minutes showed that MPC members were surprised about the low probability that market watchers attached to rate hikes this year.
Recall that Carney previously stated that the BOE could tighten before the general elections in the U.K. take place next year. A few days back, he echoed this sentiment in saying that house price inflation could convince the BOE to increase interest rates earlier than initially anticipated.
Furthermore, the minutes showed that policymakers thought that slack in the economy was being absorbed faster than projected, as wage growth has been picking up. Meanwhile, the minutes of the BOJ monetary policy showed that the central bank is still keeping the door open for further easing if necessary.
With that, the odds of a rally for GBP/JPY is higher than that of a sharp selloff below the trend line. Reversal candlestick patterns at any of the Fib levels or psychological support areas could mean that the correction is over and that the fifth leg of the wave pattern might take place.
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