GBP/JPY Staring at a Potential Bullish Breakout

GBP/JPY Staring at a Potential Bullish Breakout

1-Month Rally Erases 4-Month Decline: GBP/JPY has been bullish since making a low on the year at 174.87, which was made mid-April. A month later, a couple of sharp swings have brought the pair to new highs on the year. GBP/JPY is now threatening to test the 2014-high as we can see in the daily chart.

GBP/JPY Daily Chart 5/18
gbpjpy daily chart 5/18
(click to enlarge)

A Bearish Scenario: Now, in the daily chart we can see that price started to consolidate last week. If we see a break below 186.60, we might see a pullback towards the 184-185 area. We should expect some support in this previous resistance area. A break below 184 would open up the 181.00 pivot.

Bullish Scenario: A break above 188.60 however would open up the 189.71, 2014-high. With such a sharp bullish trend on its back, the bullish breakout would have upside risk even beyond 189.71, though the 190 level could be psychologically sticky level for the short-term.

Let’s take a look at the 4H chart below.

GBP/JPY 4H Chart 5/18
gbpjpy 4h chart 5/18
(click to enlarge)

Bullish Bias: The 4H chart suggests that we should anticipate the bullish breakout more than the bearish one. Price is above the 200-, 100-, and 50-period SMAs and the RSI has held above 40 after tagging above 70. These are all signs of a persistent uptrend.

Support/Resistance: Now, if price does falls below 186.60, we noted the support in the 184-185 area. Note that the 184.14-184.47 support/resistance pivot area is within that larger zone and deserves attention within the global session.

Examining the Bearish Pullback Scenario: Let’s say price falls below 186.60 but bounces off of the 186 handle, which is where the 50-period SMA resides at the moment. Then, if price can hold below 187.60 (center of the current range), then we should have more confidence anticipating the short-term bearish pullback towards the 184.14-184.47 area.

But if price cracks 186.60 then rebounds above 187.60, we should continue to look for a test of 189.71 and the 190 handle this week.

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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