The GBP/JPY pair has displayed a short-lived pullback after a sheer downside move to near 165.10 in the Asian session. On a broader note, the asset is oscillating in a narrow range of 164.89-166.31 for the past two trading sessions.

The asset is oscillating in a 25% range from the 52-week high, which fulfills the basic criterion of volatility contraction pattern (VCP) formation. A textbook traced breakout of a VCP after giving a close above 164.00 with an above-average tick size is hinting at a dream rally for the pound bulls. Now a test of the breakout zone near 164.00 will create a ‘test and run’ buying opportunity for the market participants.

A bull cross, represented by the 20-and 50-period Exponential Moving Averages (EMAs) at 163.00 has strengthened the pound bulls.

Also, the asset is auctioning above the 200-EMA at 160.00, which indicates that the long-term trend is favoring bulls.

Adding to that, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which dictated that upside momentum has been triggered.

A test of VCP at 164.00 will create an optimal buying opportunity, which will drive the asset towards June 21 high at 167.83, followed by the psychological resistance at 170.00.

On the flip side, the yen bulls will take the driving seat if the asset drops below the August 2 low at 159.45, which will drag the asset towards May 25 low at 155.60. A slippage below the latter will send the cross towards January 24 low at 152.91.

GBPJPY To Retest the Trend Line Before Bullish Continuation

Sep 09 2022