Thanks to positive risk sentiment, consistent improvement in UK data and growing optimism over a Brexit deal, the GBP/JPY has risen about 900 pips from its low of just under 140 in mid-August.
As a result of the rally, several horizontal levels of resistance have broken down, including 145.50, 147.15 and today 148.50, while a couple of bearish trend lines and key moving averages have also been cleared.
Therefore, the path of least resistance remains to the upside and we consequently expect short-term dips to be supported until a distinct reversal pattern unfolds or price reverses due to some fundamental stimulus.
It is imperative that the bulls now defend the first level of support at 148.50 in order to maintain control over the short term trend. If this level were to break on a daily closing basis then we could see a deep retracement and potentially a reversal even.
In any case, the short-term bias would remain bullish for as long as rates remain above 147.40 – roughly today’s low. If this level were to give way then a drop back to 145.50 could be the outcome.
On the upside, resistance is between 149.00 and 149.30, an area which was being tested at the time of writing.
Should rates break above this area as well then the rally could strength significantly further over time, although in this case the next immediate bullish objective would be the 61.8% Fibonacci retracement level at 150.20 next.
