GBPJPY is trading sideways today as the first correction since the March 2023 lows is underway. The current drop has halted at the important March 23, 2023 upward sloping trendline with the pair now hovering a tad below the April 9, 2001 high of 181.42.
The overall technical picture is more mixed at this juncture as most indicators seem to have reset after significant advances. The Average Directional Movement Index (ADX) is moving sideways, following an aggressive drop from its recent highs, and thus confirming the current GBPJPY correction. Similarly, the RSI is again trading around its 50-midpoint.
More importantly, the stochastic oscillator is dropping lower in a vertical fashion, after spending two months in its overbought area. While this move confirms the bearish pressure in the market, it also points to a developing bullish divergence as the lower low in this indicator has been met by higher low in GBPJPY.
Should the bulls decide that the recent correction has run its course, they would first try to clear the 181.42 level. They would then have the chance to record another 2023 high, above the July 5, 2023 high of 184.00, and to push GBPJPY towards the 190 area, which is key from a long-term perspective.
On the other hand, the bears are probably feeling a bit optimistic on the back of the current correction. They are clearly keen for another pullback towards the busier 174.84-176.82 range that is populated by the January 2, 2014 high, the 23.6% Fibonacci retracement of the July 20, 2021 – July 5, 2023 uptrend and the 50-day simple moving average (SMA) respectively. Breaking this area could be extremely important from a short-term sentiment perspective and it will open the door for a move towards the 170.42-170.68 region.
To sum up, GBPJPY bears might finally have a reason to smile but the mixed messages from the momentum indicators could mean that the recent upleg might have not ended.