The Chart of the Week: GBP/JPY bulls expecting upside extension

GBP/JPY is meeting significant confluence area on the daily chart which raises the prospects of a rally towards the old highs in an extension on the monthly bullish recovery.

The following is a top-down analysis that illustrates where the next opportunity can be derived from for swing traders. 

Monthly chart

The monthly chart offers support from a 61.8% Fibonacci retracement and where the price has met prior resistance structure. This offers a bullish scenario wile above it. 

Weekly chart

The weekly chart shows that the price has formed a W-formation and a subsequent retest of the neckline support.

In doing so, the price has rallied from there but it has left a significant wick on the charts.

This could be mistaken as a bearish candlestick pattern, but it could also be interpreted as a bullish prospect as explained below.

Daily chart

On the daily chart, within weekly price action, we can see that the wick is a daily pull back, and a potentially healthy correction to yet another 61.8% Fib from where it is expected to support.

A subsequent bullish impulse from here would be presumed to target the old liquidity highs prior to extending further towards the late August resistance area. 

The lower time frames can be used for an optimal entry point, and the 4-hour is sufficient. 

However, there is nothing to do until the price is above the 21-moving average and in bullish conditions in order to avoid any potential whipsaw as the market expands out of consolidation. 

4-hour chart

Luck is what happens when preparation meets opportunity.

As traders, it is our job to react and not to predict, but being prepared for possible outcomes gives us an edge. 

In the above illustration, the market has expanded out of a consolidation phase deep into the daily support which is expected to hold.

The expansion phase can, at times, last for sessions of even days and move back and forth, crossing the expansion line that is central to the consolidation phase.  

However, our top-down analysis enables us to take the view that this market is about to extend higher.

Bulls would be prudent to wait for confirmation of a bullish technical environment prior to, say, setting a buy limit order below the price but slightly above, either, the consolidation/expansion line or any new market structure formed for an optimal trade entry. 

The trade set-up would be invalidated if the market continues south and break the layers of monthly, weekly and daily support at this juncture.