Weakness in the rally of GBP/JPY seen? Streak of Higher Highs and Higher Lows have been broken, with prices in the process of forming the right shoulder of the Head and Shoulders pattern (marked by black labels). An alternate interpretation can be seen with the red labels, which suggest that the H&S pattern has already been formed. With current price trading just around the upward trendline, the red label H&S can be confirmed should price trade lower towards 140.0 neckline. For more conservative traders, the black H&S can only be confirmed when price drop below 140.0.
Stochastic indicator suggest that a top may be in place soon with readings approaching above 80.0. Fundamentally, GBP/JPY rally since 14th Nov is attributed to Yen’s weakness more than GBP strength. Last week was significant for GBP/JPY due to GBP’s weakening which is compounded with JPY’s strengthening following BOJ’s announcement. Currently Yen is weakening once more, placing doubts that current sell off, if any, could break 140.0 convincingly especially since price wasn’t able to break 140.0 even when Yen was strengthening temporarily.
Hourly Chart is also bearish with price breaking from the upward trendline. Support around 142 come in the form of consolidation zone formed between Jan 21st and 22nd. Stochastic indicator is also near 20.0 after price climbed down from 144.0, potentially entering the “Oversold” region when price hits 142.0, or perhaps even earlier around 143.0 depending on the pace of the drop. This scenario agrees with the fundamentals of Weak GBP and Weak JPY competing with one another which may cause the pair to be directionless until new catalyst is introduced in the mix.