False Bullish Breakout: GBP/JPY has been consolidating since rallying from 181.58 to 187.55 in mid-December. Then it traded in a tight range between 186.48 and 187.55. Last week, there was a brief crack above 187.55 but the breakout was weak and unclear. More importantly, the subsequent dip broke below the middle of the range around 186.60, invalidating the bullish breakout.
Bearish Breakout: When we have false breakouts, we should anticipate a breakout to the opposite side. This was the case for GBP/JPY, which started this week with a break below 185.84.
Pullback/Confirmation: There might be some support in the 184.50-185 support/resistance pivot area, especially if the 4H RSI dips below 30. If the current bearish breakout is to extend, the 186.45-187 area should now become resistance against a subsequent pullback.
Support Levels: If the broken range can act as resistance, then we can look for further downside risk towards:
1) 183-183.50 (support area, Dec. 16-17, 50-day SMA)
2 181.60-182 (December lows)
3) 180.85-181.10 (support/resistance pivot, Nov-lows)
4) 178.70-80 (previous common resistance in Sept., 100-day SMA
Support 3), and 4) can be seen in the daily chart below.
Bullish Trend, Bearish Correction: The daily chart shows that the market has revived a bullish trend in October after consolidating most of the year. But before 2014, the GBP/JPY was also bullish. If the current bearish correction swing reaches the 178.70-80 area, it would complete an ABC correction.
Secular JPY-Bear Market, Buy GBP/JPY on Dips: It is important to realize that the Japanese Yen might be in a secular bear market (5-25 years) since 2011. So, if we see some short to medium-term bearish correction, as we are expecting after the start of this week, we should look for buyers at key levels, especially when the daily RSI approaches 40. If the daily RSI does hold above 40, it would reflect maintenance of the bullish momentum, and keep the bullish trend alive.
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