GBP/JPY Technical: At the risk of multi-week bearish mean reversion

  • The current major uptrend phase of GBP/JPY has almost reached a key inflection/resistance level of 187.30.
  • The weekly RSI momentum indicator has flashed out bearish conditions that advocate a potential multi-week bearish mean reversion/counter-trend movement.
  • 50 is the key short-term resistance to watch with intermediate supports coming in at 180.60 and 179.20.

Bulls may have hit a major roadblock

Fig 1: GBP/JPY major trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

The multi-month major uptrend phase of GBP/JPY in place since its September 2022 low of 149.05 has almost reached a key inflection/resistance level of 187.30 (printed an intraday high of 186.77 on 22 August 2023) which is defined by the September/November 2015 swing highs, upper boundary of the major ascending channel from September 2022 low, and a cluster of Fibonacci extension levels projected from various swing lows within the major uptrend.

In addition, the weekly RSI momentum indicator has flashed a bearish divergence condition at its overbought region, suggesting that the upside momentum of the major uptrend phase has eased off. These observations in turn increase the odds of a multi-week bearish mean reversion/counter-trend movement at this juncture.

Oscillating within a steeper minor descending channel

Fig 2: GBP/JPY minor short-term trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

In the shorter term as seen in the 1-hour chart, the price actions of GBP/JPY have started to oscillate within a steeper descending channel in place since the 6 September 2023 high of 185.78. Also, it has accelerated on the downside ex-post Bank of England’s monetary policy decision to keep its policy interest rate unchanged at 5.25% on last Thursday, 21 September.

Interestingly, the minor snap-back in price actions seen last Friday, 22 September after the prior day’s 205 pips intraday plunge has managed to stall at the pull-back resistance of the former broken-down ascending channel support from the 23 August 2023 low and the 61.8% Fibonacci retracement of last Thursday, 21 September intraday plunge from 182.86 high to 180.81 low.

In addition, the hourly RSI has shaped a “lower low” and started to inch lower right below the 50 level, suggesting short-term bearish momentum has resurfaced.

Watch the 182.50 key short-term pivotal resistance to maintain the bearish bias for another potential down leg to test the intermediate supports of 180.60 and 179.20.

However, a clearance above 182.50 negates the bearish tone to see the next resistance coming in at 183.80 (also the downward-sloping 20-day moving average).

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Kelvin Wong

Kelvin Wong

Senior Market Analyst, Asia Pacific at OANDA
Based in Singapore, Kelvin Wong is a well-established senior global macro strategist with over 15 years of experience trading and providing market research on foreign exchange, stock markets, and commodities. Passionate about connecting the dots in the financial markets and sharing perspectives around trading and investment, Kelvin Wong is an expert in using a unique combination of fundamental and technical analyses, specializing in Elliott Wave and fund flow positioning, to pinpoint key reversal levels in the financial markets. In addition, over the last ten years, Kelvin has conducted numerous market outlook and trading-related seminars, as well as technical analysis training courses, for thousands of retail traders.