GBPJPY: Will the Bulls Stage a Rally?

The GBPJPY pair has been on a downward trajectory since mid-July, influenced by bearish technical indicators. While there are signs of a potential bullish reversal as prices bounce back from the lows, major technical indicators do not support these prospects, which present a combination of conflicting signals. Traders should closely monitor these factors along with upcoming key economic data to make well-informed trading decisions.

High Impact Economic Events

Friday 01:45 am (GMT+3) – New Zealand: Retail Sales q/q (NZD)

Friday 12:30 pm (GMT+3)- Canada: Retail Sales m/m (CAD)

Friday 17:00 (GMT+3) – USA: New Home Sales (USD)

The GBPJPY has been following a downward trend since July 11, when it peaked at 208.106, the highest price of the year. This downward movement was indicated by a Japanese candlestick formation known as a Bearish Engulfing Pattern followed by the price dropping below the 20-period Exponential Moving Average (EMA), creating a series of lower lows and lower highs. On July 31, there was a second bearish signal when the 20-period EMA crossed below the 50-period EMA, resulting in a strong bearish signal known as a “Death Cross.” This intensified the downward momentum, bringing the GBPJPY exchange rate down to 180.089 on August 5. After that, prices showed signs of bouncing back from the lows in an attempt to form an upward correction and a potential reversal if the bulls manage to push the price above the swing high of 192.004. The Momentum oscillator indicates a potential bullish outlook as it registers values above the 100 baseline. However, the two EMAs and the Relative Strength Index (RSI) send different signals. Specifically, prices are still below the 20 and 50-period EMAs, and the RSI records values below 50, indicating a continued downtrend.

Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:

194.331: The first price target is identified at 194.331, reflecting the 161.8% Fibonacci Extension between the swing high at 192.004 and the swing low at 188.232.

198.096: The second target is seen at 198.096, corresponding to (R3) resistance calculated using the weekly standard Pivot Points method.

204.187: The third price target is determined at 204.187, which corresponds to the 423.6% Fibonacci Extension drawn from the swing high of 192.004 to the swing low of 188.232.

208.106: An additional resistance is seen at 208.106, aligning with a peak formed on July 11.

Should the sellers keep market control, traders may consider the four potential support levels listed below:

188.232: The primary downside target is identified at 188.232, corresponding to the swing low formed on August 19.

185.087: The second support level is 185.087, representing the (S2) support calculated using the weekly standard Pivot Points method.

183.111: The third support line is established at 183.111, representing the (S3) support calculated using the weekly standard Pivot Points method.

180.089: An additional downward target is observed at 180.089, corresponding to the daily low marked on August 5.

The GBPJPY pair has been in a downward trend since mid-July, influenced by bearish technical indicators such as a Bearish Engulfing Pattern and a Death Cross. While there are some signs of a potential bullish reversal, major indicators like the Exponential Moving Averages (EMAs) and the Relative Strength Index (RSI) continue to suggest a downtrend. Key resistance and support levels have been identified, providing potential targets for traders depending on market direction. Additionally, upcoming high-impact economic events, including retail sales data from New Zealand and Canada, as well as U.S. New Home sales, could further influence market movements. Traders should closely monitor these developments for informed decision-making.