GBP/JPY closed positively on Tuesday at 171.19 with a large bullish engulfing bar, making a bullish harami candlestick pattern on daily chart which is considered a good sign of bullish sentiment, I however believe that this bullish momentum is short lived and the pair is poised for much awaited correction.
Look at the following four hour chart for more in-depth view, the pair recently printed Lower High (LH) and Lower Low (LL) that shows trend is bearish.
Bias shall remain bearish until the ongoing wave prints a Higher High (HH), which seems less likely. At the moment the pair is being traded at 171.42 where it is likely to face a tough resistance at 171.96 which is 76.4% fib level as well as last notable resistance ahead of previous swing high. If GBP/JPY manages to break 171.96, it would then be all set for printing a Higher High (HH), thus changing our bias once again to bullish.
If we see a reversal from 171.96, the final target would be 165.76, a major support level below swing low of previous downward wave.
It is pertinent to mention here that we can see some significant positive divergence on weekly as well as monthly chart which means more upside movement, that would result new multi-year highs, is very likely and the long term bias for GBP/JPY is still very bullish. The pair, however, should take some retracement before resuming the upward move.
Yesterday data shows that the US retail sales rose more than expectations with 0.2% reading compared to 0.1% forecast, this helped USD/JPY and other JPY crosses to gain some bids. As far today, no high profile release is due in any session, so the pair would remain on the mercy of technicals and as we mentioned above technicals are bearish in short term.