GBP/JPY has been sliding sharply since making its 2014-high at 189.71 in early December. After a couple of bearish swings the pair found support around 176.00. Let’s take a look at the charts to assess the medium and long-term outlook.
In the medium-term, GBP/JPY has turned from bullish to bearish, or at best sideways pending clues from further price action. However, the long-term trend that started in 2012 has not shifted, it is still bullish.
1) Price bounced off the 200-day simple moving average (SMA)
2) Price rebounded after a Fibonacci retracement of 61.8%.
3) The structure can be considered an ABC correction, or a variation of a Gartley pattern.
These three factors are bringing in buyers around 176, which is keeping GBP/JPY bullish in the long-term.
Bullish Scenario: To the upside, the potential is a bullish continuation, which means at least a return towards the falling trendline seen in the daily chart, which means around or just above 184.00. A more aggressive outlook would be a return to the 2014-highs around 189.70. A more conservative outlook would be the 182.00 handle, which is also around a previous support pivot in December.
Bearish Scenario: Now, if price holds below 182.00, the market will see GBP/JPY in a strong bearish structure, and will have more confidence continuing to short the pair. In this scenario, the downside risk can extend below 176 towards the 172-173 area (using a wave I = Wave V projection), or even down to the 170 psychological level, which was also a common support area in 2014.
Another Key Support: Now, when we look at the weekly chart, we see that even below 176, there is room to fall within the context of a bullish secular market.
Around 174.80-175, we see the 50-week SMA, a rising trendline, and a previous resistance area (in 2014). Perhaps, we should keep a limit to the bearish outlook in favor or continuing the prevailing uptrend until a break of the 3 above-mentioned support factors in the weekly chart.
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