Failed Bearish Attempt
The recent bearish attempt by the GBP/JPY failed to extend. Price broke below the 200-day simple moving average (SMA), but found buyers at the support from April and May around 169.50. This can be attributed to both a consolidation in GBP against its recent weakness, and the general weakness of the JPY across the board.
As we get into the 9/11 US session, price is cracking the 174.00 handle and trying to pull the 4H RSI back above 60. If successful, both will be signs of bullish continuation. For now, even though we are still a step from the bullish outlook, we have invalidated the bearish outlook with this week’s v-shape reversal.
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Expecting a Pullback
Now, we should probably respect the choppiness of the market, but if price is indeed shifting back to the bullish mode, we should see GBP/JPY stay above 171.25 (where the 200-day SMA resides). A hold above 173 would be an even strong sign because it would show respect to the cluster of 200-, 100-, and 50-day simple moving averages.
When we look at the 4H chart, we can see a cluster of SMAs in the 172-172.25 area. If price can hold above 172, it would be a good indicator that GBP/JPY is indeed shifting into the bullish mode. If the 4H RSI holds above 40 after a pullback, we can also say that the bullish momentum is being sustained.
The bullish outlook has the 175.33 high on the year in sight. However, if price falls below 171.25, the bullish outlook would be in trouble.
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Bearish Outlook: Now, if price can not hold above 171.25, the bearish outlook will return in the short-term, within the context of a sideways market in 2014. The 169.50 level will be the first target/key support to monitor for the bearish outlook. Below that, GBP/JPY has the March low at 167.76 as the next key level.
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