GBP/JPY – Bearish Confirmation or Bullish Breakout?

GBPJPY is trading at a very interesting level right now. After breaking below the ichimoku cloud and 55/89-day simple moving average combination two months ago, the pair continued to take out support after support with relative ease, creating quite a bearish outlook in the medium term.

The last month has seen the pair pare some of those losses and now we find ourselves at a key level. Price has run into resistance over the last week between 150.00 and 151.00, where the 55/89 DMAs once again cross the ichimoku cloud, something that did not end well last time. The fact that this combines with the 50 fib level – 2 February swing high to 2 March swing low – makes this an increasingly noteworthy level.

This time though, rather than powering through them, the rally has stalled and the momentum indicators don’t give the impression of a pair that’s about to break down the barriers right now. While oscillators are not a primary indicator – that will always be price – a divergence between price action and the stochastic and MACD can be a useful signal of an impending bias shift. For the last month, the trend has been nicely bullish, but is that about to change?

From a technical standpoint, a rotation off the current level would be very bearish. Aside from signaling a continuation of the medium term bearish move, it would also act to confirm the initial breakout.

None of this is to say price can’t and won’t break above here. And if it did, that would be quite a bullish signal. The important thing is we should get a clear indication of whether the market is bearish or bullish very shortly. As it stands, the pair looks bearish and the break of the 200/233 DMAs last month supports that (although it did turn out to be a false breakout back in August).

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This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.