GBP/JPY Price Analysis: Overbought conditions warrant caution after staggering rally

GBP/JPY is holding at the highest levels in three years at 153.40, having rallied nearly 140 pips from the daily lows of 151.98.

The surge in the cross is mainly driven by strong gains in the pound, as the bulls cheer the outcome of the local elections in the UK. Prime Minister Boris Johnson’s Conservative Party came in stronger than expected in Northern England.

Meanwhile, the Scottish National Party (SNP) fell short of an outright majority, which implies the second independence referendum could be at risk.  

Further, the UK prepares to extend its covid reopening, which also serves positive for the cross. Additionally, mild gains in USD/JPY fail to have little to no impact on the cross.

From a near-term technical perspective, GBP/JPY remains poised to break above the 153.50 barrier, following a symmetrical triangle breakout on the four-hour chart confirmed late Friday.

 The 14-day Relative Strength Index (RSI) has eased slightly but remains within the overbought territory, signaling caution for the bulls.

The intraday low of 151.98 could offer strong support if the correction gathers traction. Ahead of that the 152.50 psychological level needs to cave in.  

On the flip side, acceptance above 153.50 could call for a test of the pattern target measured at 153.66.

Further up, the 154 round figure could come into play.

GBP/JPY four-hour chart

GBP/JPY additional levels to watch