GBP/JPY stalls and starts to reverse at major trend line
- Possibility of a recovery higher conditional on break of trend line
- Yen to be driven by global risk trends
The Pound-to-Yen exchange rate is trading at around 129.169 climbing 1.68% in the week before and studies of the charts show the pair has probably reversed trend in the short-term and the bias is now more to the upside.
The 4 hour chart - used to determine the short-term outlook, which includes the coming week or next 5 days - shows the pair having based on a major trendline and forming a reversal pattern called an inverse head and shoulders (H&S).
The combination of the reversal pattern and trendline support provide a bullish signal despite the previous strong downtrend, yet even so further upside is dependent on a break above certain levels for confirmation.
A break above the neckline and the 130.23 highs would provide confirmation of more upside to a target at 133.00/20 in the short-term.
The RSI momentum indicator is rising quite strongly in tandem with the exchange rate and further suggests more upside on the horizon.
The Hourly 4 chart
The daily chart shows a similar picture, with the pair falling to support at a major trendline and forming an inverse head and shoulders (H&S) pattern and bullish RSI momentum further supporting the outlook.
Upside is capped by the down-sloping trendline at around 132.000. A break clearly above that would probably lead to further upside to a target at the 200-day moving average (MA) at around 140.000 Major MAs often provide tough resistance to trending prices.
Given the strength of the previous downtrend, there is also still a lingering chance the pair could break lower, with a move below the August 12 lows at 126.65 leading to a continuation of the downtrend to a target at the 125.00 Oct 2016 lows.
The daily chart is used to give an indication of the outlook for the medium-term, defined as the next week to a month ahead.
The Daily Chart
Looking at the weekly chart - used to give us an indication of the outlook for the long-term, defined as the next few months - shows how the exchange rate has now formed a 2-bar reversal pattern after breaking out of the bottom of a possible wedge pattern.
Assuming the pair has reversed its downtrend and is now in a short-term uptrend, there is a possibility it could rally all the way up to a target at 135.000. Wedge patterns are normally considered bullish and this adds the potential for more upside.
Alternatively, there is still a chance that the entrenched downtrend may continue down to a target at 125.000 and the October 2016 lows.
The Weekly Chart