Forex Technical Update July 26, 2010  GBP/JPY Assessing Possible Bullish Signal

  • 1H: The GBP/JPY started the week rallying towards 135.60 and was rejected there. There was a bearish divergence, and we see that materialize for about 100 pips.
  • This brings the market back to the level it started this week and tests a rising trendline.
  • The 133.80, 38.2% retracement level can be seen as a target in the near-term.
  • However, there may be a bullish signal developing, if the market fails to get to this target.
  • If the market stays above 134, the previous low, there would be a positive reversal with the RSI. ( the RSI low is lower, but the price low is higher). This suggests we should at least have one more capitulation move to break the 135.60 high.

  • Daily: The GBP/JPY in the daily can be seen as trapped in a sideways channel roughly between 131 and 136.
  • We can also count 5 waves within the channel/congestion. Basically the most recent upswing is the 6th wave.
  • Now Elliott Wave Principles suggest there can be 5-wave or 7-wave triangles, or wedges. This can be considered such a pattern.
  • Therefore, in the bigger picture, there are a couple scenarios just for the bullish scenario.
  • One is that the current rally will continue, as suggested in the 1H chart, and a breakout will be strong, materializing into a rally to C, near 140.
  • Or, there might be a wave 6, 7 before a rally takes place.
  • The bearish scenario opens up for me if the market can close below 131.50. Looking at the orientation of the SMA200 vs. SMA50, we see that the overall mode is still bearish and this scenario is not out of the question.

  Fan Yang Currency Analyst Commodity Trading Advisor

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