GBP/JPY eases off 6-year high, rally may run out of steam
The GBPJPY hit a new six-year high at 161.48 earlier today but the price is now back to around 160.75. The pair has risen sharply since the two-month low of 150.97 hit on March 8. However, momentum indicators suggest the latest rally is cooling.
The RSI and the Stochastic Oscillator have entered overbought territory, warning that a short-term correction is due. Stochastics have been holding above 80 for over a week now, while the RSI, which only topped 70 a few days ago, is pointing lower. Nonetheless, the indicators have held in their respective overbought zones for longer durations in the past, so a big downside reversal might not be a foregone conclusion.
Price is currently trying to gain a foothold on the 138.2% Fibonacci extension of the February-March decline at 160.76. If it doesn’t, the 123.6% Fibonacci of 159.73 is the next line of defense that could prevent a deeper correction. If not, the pair would likely retrace towards the February high of 158.05, restore the longer-term neutral trend. Even lower, the 61.8% Fibonacci retracement at 155.35, where the 50-day moving average also converges, is the next critical support to watch as slipping below this zone would intensify downside risks.
However, if today’s drop turns out to be a temporary anomaly, the GBPJPY could turn to the 161.8% Fibonacci extension of 162.43. Crossing above this level would bring the 165.0 handle into range. Besides, the medium-term picture would begin to look more convincingly bullish.
In summary, the short-term positive bias is likely to fade and turn negative, while from a broader perspective, the rally still has some way to go before a clear bullish pattern forms.