GBP/JPY rallied yesterday following reports that UK PM May’s new offer will include a requirement for MPs to vote on whether to hold a second referendum. However, the pair was quick to reverse the gains as lawmakers remained dissatisfied by the new offer. The slide continued today as well, with the rate approaching the key hurdle of 139.65, which the bears have been struggling to overcome since Friday. That said, even if the rate rebounds somewhat again from that zone, bearing in mind that prevailing short-term trend is to the downside, we would hold a somewhat negative stance for now.
As we already noted, the pair could still trigger some buy orders near the 139.65 zone, but if the recovery stays limited near the 140.70 zone, we would expect the bears to take charge again and aim for another test near 139.65. A clear dip below that level would confirm a forthcoming lower low on the 4-hour chart and could initially aim for the 139.00 zone, marked by the low of January 16th, the break of which may allow the slide to continue towards the 138.40 area.
Looking at our short-term oscillators, we see that the RSI, although below 50, has ticked up again, while the MACD is negative, but above its trigger line and shows signs that it could also turn back north. These indicators detect negative momentum but their tendency to head a bit higher enhances our view for a small corrective bounce before the next negative leg.
On the upside, we would like to see a decisive recovery above 141.75 before we start examining the case of a trend reversal. Such a move would confirm a forthcoming higher high and could allow the bulls to extend their journey towards the 142.25 area. Another break, above 142.25, may carry more bullish implications, perhaps paving the way towards the 142.90 or the 143.20 resistance territories, defined by the highs of May 10th and 13th.
