GBP/JPY Technical: At the Risk of Multi-Week Bearish Mean Reversion

• The current major uptrend phase of GBP/JPY has almost reached a key inflection/resistance level of 187.30.
• The weekly RSI momentum indicator has flashed out bearish conditions that advocate a potential multi-week bearish mean reversion/counter-trend movement.
• 50 is the key short-term resistance to watch with intermediate supports coming in at 180.60 and 179.20.

Bulls may have hit a major roadblock

Fig 1: GBP/JPY major trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

The multi-month major uptrend phase of GBP/JPY in place since its September 2022 low of 149.05 has almost reached a key inflection/resistance level of 187.30 (printed an intraday high of 186.77 on 22 August 2023) which is defined by the September/November 2015 swing highs, upper boundary of the major ascending channel from September 2022 low, and a cluster of Fibonacci extension levels projected from various swing lows within the major uptrend.

In addition, the weekly RSI momentum indicator has flashed a bearish divergence condition at its overbought region, suggesting that the upside momentum of the major uptrend phase has eased off. These observations in turn increase the odds of a multi-week bearish mean reversion/counter-trend movement at this juncture.

Oscillating within a steeper minor descending channel

Fig 2: GBP/JPY minor short-term trend as of 25 Sep 2023 (Source: TradingView, click to enlarge chart)

In the shorter term as seen in the 1-hour chart, the price actions of GBP/JPY have started to oscillate within a steeper descending channel in place since the 6 September 2023 high of 185.78. Also, it has accelerated on the downside ex-post Bank of England’s monetary policy decision to keep its policy interest rate unchanged at 5.25% on last Thursday, 21 September.

Interestingly, the minor snap-back in price actions seen last Friday, 22 September after the prior day’s 205 pips intraday plunge has managed to stall at the pull-back resistance of the former broken-down ascending channel support from the 23 August 2023 low and the 61.8% Fibonacci retracement of last Thursday, 21 September intraday plunge from 182.86 high to 180.81 low.

In addition, the hourly RSI has shaped a “lower low” and started to inch lower right below the 50 level, suggesting short-term bearish momentum has resurfaced.

Watch the 182.50 key short-term pivotal resistance to maintain the bearish bias for another potential down leg to test the intermediate supports of 180.60 and 179.20.

However, a clearance above 182.50 negates the bearish tone to see the next resistance coming in at 183.80 (also the downward-sloping 20-day moving average).