- GBP/JPY’s August rally is running out of steam and risks reversing lower.
- It has sold off steeply from the September peak and broken below a key level.
- Further weakness is required to confirm a bearish reversal.
GBP/JPY has unfolded a recovery rally since the August 5 lows. Since then, it has risen from a low of 180.09 to a peak of 193.49 reached on September 2.
This almost month-long rally is now showing signs of weakness, however, which indicates the risk of a reversal lower is growing. If GBP/JPY does reverse lower, the bias will shift to favoring lower prices.
GBP/JPY 4-hour Chart
The pair has fallen quite steeply from the September 2 highs and it recently broke below a key swing low situated at around 190.26.
The Relative Strength Index (RSI) momentum indicator has fallen to 37.77 and is showing the momentum that accompanied the sell-off from the peak was strong.
Although these signs suggest a bearish reversal is developing, they are not quite enough to be confident. The pair needs to fall lower to be more certain. Ideally it should fall below 189.50 (August 26 low) to confirm a new bear trend was underway. Such a move would probably follow through down to an initial target at 188.24 (August 19 low).
Alternatively, a recovery is still possible given the lack of downside confirmation. A close above 192.00 would strongly indicate a resumption of the August rally was underway. Such a move would then be expected to continue up to the 193.49 September 2 highs.
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