The GBPJPY currency pair has been treading water lately, seeking a clear path forward. Last week, the UK encountered a technical recession when GDP data revealed a 0.3% quarter-on-quarter contraction, marking consecutive quarters of negative economic growth.
Simultaneously, Japan also faced a technical recession of its own. This led to a decline in the Japanese Yen, propelling the Nikkei 225 futures to impressive multi-decade highs. Now, as both currencies stabilize, the pair is poised for potential movement. A compelling setup on the technical chart suggests an intriguing session ahead for the GBPJPY.
Technical
On the 4H chart, a symmetrical triangle has formed. The convergence of the 25-SMA (green line) and the 50-SMA (blue line) confirms the neutrality in the sentiment. However, the price action has pushed through the dynamic resistance of the triangle and could signal a bullish trend formation in the upcoming sessions.
Resistance at 189.518 provides the first hurdle to the breakout and could be a pivot point for a retracement. The price could retest the breakout level with a temporary pullback, and if another bounce occurs to the upside, the breakout could be confirmed. In this case, resistance at 190.048 could become crucial, as it triggered a pullback of the prior uptrend. However, if the price can clear this psychological resistance, the door is open for convergence with the 161.8% Fibonacci extension at 191.193.
If the price fails to clear 189.518, the breakout could fail. A pullback toward support at 188.807 becomes likely, and backed by the 25-SMA and 50-SMA, it creates a psychological support level. The price could be at an inflexion point here, and a bearish leg could drive the pair toward 188.483 in the longer term.
Summary
The GBPJPY currency pair is trading sideways in search of direction. However, a potential breakout from the symmetrical triangle could form a new bullish trend if the price can sustainably clear the 189.518 resistance.
Sources: Koyfin, Tradingview
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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