- GBP/JPY has been oscillating in a trading range over the past one week or so.
- The formation of a rectangle, inverted head & shoulders favours bullish trades.
- A sustained move beyond the 153.40-45 area is needed to confirm the positive bias.
The GBP/JPY cross extended its sideways consolidative price action through the first half of the European session and remain confined in a narrow trading band near the 153.00 mark.
Looking at the broader picture, the GBP/JPY cross has been oscillating in a range over the past one week or so, forming a rectangle on the daily chart. Given the recent strong rebound from the 148.45 region, or the lowest level since early March, the rectangle might still be categorized as a bullish continuation pattern.
Moreover, the recent price action over the past one month or so constitutes the formation of a bullish inverted head and shoulders pattern. The neckline resistance is pegged just ahead of mid-153.00s, which if cleared decisively will be seen as a fresh trigger for bulls and set the stage for a further appreciating move.
The constructive setup is further reinforced by the fact that technical indicators on the daily chart are holding in the bullish territory. That said, it will still be prudent to wait for a sustained break through the neckline resistance, around the 153.40-45 area, before confirming a near-term bullish breakout.
The GBP/JPY cross might then aim to reclaim the 154.00 mark and extend the momentum further towards the next relevant hurdle near the 154.55-60 region. Some follow-through buying should pave the way for a move towards the key 155.00 psychological mark en-route multi-year tops, around the 156.00-156.10 region touched in May.
On the flip side, the lower boundary of the one-week-old trading range, around mid-152.00s, now seems to protect the immediate downside. Any subsequent decline might be seen as a buying opportunity near the 152.00 mark. This should help limit any further downside for the GBP/JPY cross near the 151.15 support area.
GBP/JPY 4-hour chart
Technical levels to watch