Bullish case for GBP/JPY

Looking back in time we see that the GBPJPY moved into a 16-month downtrend following the 195.87 peak reached in June 2015. Support was eventually found at 124.59 four months ago. It was promptly followed by a sharp nine-week rally up into 148.45 resistance (most recent peak). That price area is where both support and resistance were seen back in 2013, at resistance of the 55-week exponential moving average (ema), and at the 61.8% Fibonacci retracement of the internal downtrend (coming off the 168.08 lower swing high).

gbpjpy-wkly_annotated_feb9_2017

The rally triggered a number of long-term bullish signals that point to a likely change in trend, including:

  • Decisive close above the 21-week ema on a weekly and monthly basis
  • Close above two prior swing highs (long-term downtrend price structure)
  • Broke above long-term downtrend line
  • Rallied above 200-day ema
  • Bullish crossover of 21-day ema and 55-day ema
  • Rising 21-day ema

Since the 148.45 peak the GBPJPY retraced 50% of the prior rally. Support was found at 136.45 three weeks ago. The pair is now working to further strengthen off that low. That low also completes a test of support of the downtrend line following a move above it in early-December. This is further bullish behavior as the line was long-term resistance and is now confirmed as support.

gbpjpy-daily_annotated_feb9_2017

The next confirmation of strength is given on a move above 144.77 (recent minor peak). The pair then heads towards a test of the 148.45 swing high and a likely move above it. Based on price structure the standout target would then be around the 164 peak from earlier in 2016.

However, the first high probability target zone is from approximately 157.68 (completion of measured move or ABCD pattern) to 158.37 (200-week ema). A measured move reflects symmetry between market swings. In this case the completion of the measured move is where the second leg up in the uptrend matches the price appreciation of the first leg up (off October 124.59 low).

An alternative to the above bullish scenario is that the GBPJPY falls below the 136.45 swing low from three weeks ago leading to a deeper retracement of the November rally. (www.marketstoday.net/en/)

Bruce Powers, CMT
About the Author
Bruce Powers, CMT, has over 20 years experience in the financial markets. Previously, he was President at WideVision, a Dubai based FinTech and IT services company, which published MarketsToday.net/en/, and where he also was Chief Technical Analyst. For the past eight years Bruce has written a weekly column on the UAE stock markets titled \'On the Line\' for the Gulf News newspaper, and has appeared numerous times as a guest on TV business shows. Bruce is a Chartered Market Technician (CMT) and until recently served as Co-Chair of the CMT Association Dubai chapter, which he Co-founded.

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