Technical Sentiment: Bearish
- GBP/JPY rally eyes the 172.00 resistance area;
- May’s bearish trend is at risk above the resistance;
- Buyers are likely to take a breather ahead of Wednesday and Thursday releases.
With the recent bounce off 169.50, the Sterling Pound has climbed all the way up to the most recent resistance cluster just below 172.00. The downtrend configuration remains intact for now, with Lower Highs and Lower Lows. A breach above 172 will radically change the technical landscape, opening the way higher towards the old resistance area surrounding 173.50.
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GBP/JPY is currently trading above 171.60, facing immediate resistance in the form of the 200 Simple Moving Average on the 4H time frame. During the European session the market attempted to change sides by crossing above it, only to return lower in the end. Thus far the rejections have not been accompanied by any bearish price action signals, so the attraction toward the 200 SMA will persist.
The most recent Lower High is 27th May top at 171.96. This level coincides with 61.8% Fibonacci Retracement between 173.41 down to 169.52, indicating the bullish correction would complete itself in this area. Stochastic is in oversold territory on the 4H time frame, also pointing out that the bullish cycle might be over. On the premise that GBP/JPY is currently forming another Lower High, the pair should begin a rapid descend first 171.00, then to the lower 170.00 – 169.50 area.
A rally above 172.00 will invalidate the Lower High – Lower Low configuration, reversing the bearish bias immediately and opening the way higher toward the major resistance around 173.50.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets