GBP/JPY Weekly Outlook

GBP/JPY dipped to 154.03 initially last week but recovered from there. Nevertheless, strength of the rebound was rather unconvincing as upside is still limited below 159.58 resistance. We'll stay neutral initially this week. On the upside, above 159.58 will suggest that corrective fall from 162.56 has already completed at 154.03 and will flip intraday bias back to the upside for retesting this high first. However, below 155.92 minor support will suggest that fall from 162.56 is possibly still in progress and will flip intraday bias back to the downside for 154.03 support. Break there will target a test on trend line support at 152.12.

In the bigger picture, medium term rise from 118.81 is treated as correction to the fall from 215.87 and is expected to conclude in 155.88/167.34 resistance zone (38.2% and 50% retracement of 215.87 to 118.81). Break of 154.03 support will argue that such correction has completed at 162.56 already. Sustained trading below channel support (now at 1152.12) will add much credence to this case and will likely encourage a retest of 118.81 low at least. However, before that, another rise cannot be ruled out. But after all, we'll continue to look for reversal signal even if such rally will extend.

In the longer term picture, fall from 251.09 is treated as resumption of multi decade down trend. Note that the fall from 215.87 is not treated as the fifth wave, but the third wave inside the third wave that started at 241.35. In other words, the whole down trend shouldn't be over yet and would probably extend further to test 100 psychological level after completing the fourth wave consolidation from 118.81. However, note that sustained trading above 167.34 fibo resistance will seriously dampen this bearish case.

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