Bottom line: GBPJPY medium term outlook is looking bearish and it could drop towards 128.00/129.30 levels before resuming its rally. A drop below 126.00 would threaten the long term bullish structure as traders prepare to break below 124.00 levels.
Fundamental Outlook:
GBPJPY and other JPY crosses my come under pressure as the Japanese Yen might gain amidst the COVID-19 pandemic effect on Global Economies. GBPJPY and USDJPY may drop as Global Equity Markets stare at another round of selloff. GBPJPY had dropped almost 11% between February 24 and March 18, 2020, while USDJPY had dropped by almost 7% by March 09, 2020.
Dow Jones and SPX500 closed around 1% lower yesterday. Fears of a potential trade war between US and China has brought Global Indices under pressure again as they remain vulnerable for another huge selloff. A trade war amidst COVID-19 crisis can only worsen Global Economic Outlook which is already facing deep recession according to IMF reports (Global GDP to shrink by around 3% in 2020).
Technical Analysis:
GBPJPY remains in control of bears until prices stay below 136.00 levels in the short term. A corrective structure might be unfolding since 135.75 highs on April 09. 2020. GBPJPY is expected to drop towards 129.30/40 levels at least and could extend towards 128.00 before resuming higher again.
Earlier, GBPJPY had rallied between 124.00 and 135.75 levels. It is expected to retrace lower towards fibonacci 50% retracement at 129.30 or towards the 61.8% retracement at 128.00 respectively. Once the above counter trend is complete, we can expect a bullish turn towards 138.80/139.00 levels.
The above bullish scenario is expected to remain intact until prices stay above 126.20 levels which is fibonacci 0.786 retracement of the previous rally. A break lower would threaten to test 124.00 levels, going further.
Most traders might remain flat for now and initiate fresh long positions around 129.30/40 levels, with protective stops below 124.00 and projected targets towards 139.00 levels respectively.
Prepared by
Harsh Japee, Technical Analyst.
GBPJPY Chart
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