The GBP/JPY has been showing very strong bullish momentum. But it might be time for a pullback with a divergence pattern visible on the daily chart.
- The GBP/JPY bullish impulse is typical for a wave 3 (purple) impulse:
- The divergence pattern between the tops (purple lines) is indicating the uptrend is running out of steam. A reversal might occur now or soon.
- A bullish breakout above the smaller bull flag chart pattern, however, could indicate one more push up (green arrows) and a higher high.
- The main bullish targets are located at the 157.25-50 and 159.35-160 target zones.
- Whereas a bearish breakout (orange arrows) below the support trend line (green) and the 21 ema support zone could indicate a bearish retracement.
- The retracement is expected to create a bearish ABC (pink) pattern and is aiming at the Fibonacci retracement levels of wave 4 (purple).
- The most common Fibonacci Fibonacci levels are the 23.6% and 38.2% where a bullish bounce (bullish arrow) is expected.
On the 4 hour chart, price action is still in an uptrend because the price is above the 21 ema zone, which is above the 144 ema, 233 ema, and 610 ema:
- The bull flag chart pattern indicates the potential for more upside before the divergence pattern on the 4 hour and daily charts has an impact.
- A breakout above the flat (green arrows) could confirm the uptrend and the wave 4-5 (grey) pattern.
- Price has already made a bounce at the 38.2% Fibonacci level. But a break below it could indicate a reversal instead (orange arrows).
- The odds of a bearish or bullish breakout seem to be about 50-50% so waiting for the actual breakout to take place could make sense.
- With a bearish breakout, the larger bearish retracement on the daily chart could begin.