GBP/JPY had uneventful trading for another week, remaining stuck between the 137.40 resistance and the 135.79 key support, which coincides with the 78.6% Fibonacci of the up-leg from 132.48 to 148.86. There is however a bullish divergence signal of a possible trend reversal, as the RSI and the MACD continue to print higher lows at a time when the price keeps trending downwards, suggesting that the market may soon change direction.
A strong rally above the previous high of 138.32 and more importantly above the 139.60 level could be interpreted as a validation of the bullish divergence warning. Before that, the price should first breach the 137.40 level.
Alternatively, a break below the 135.79 level and a decisive close under the 6 ½-month low of 135.36 could strengthen negative momentum, pushing support towards 133.40 and the 2-year low of 132.48 reached in January. Consequently, the medium-term outlook would shift even bearish.
In brief, GBP/JPY is trading neutral for the second week but the conflicting signs between the price and the momentum indicators are pointing to a reversal in the bearish trend. Meanwhile, the medium-term picture is holding negative.
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