GBP/JPY - 210.00 Before 250.00 Is a Possibility

The GBPJPY is on many traders minds as the pair approaches the 240.00 figure (again). The pair has recovered about 62% of its July-August drop from 251.10 to 219.30 but individual patterns in both legs of the cross and the cross itself warn that now is not the time to turn bullish for a test of the high.

A simple RSI study suggests that the GBPJPY may be in for a much bigger decline. In this chart, the bars are painted red to signal when RSI is below 40 and blue to signal when RSI is above 60. The blue and red designate the trend as bullish or bearish. The black bars are more or less consolidation periods. If a trader were using this information in a strategy, directionality would be determined by the last colored bar (blue or red). Since 1998, there have been 5 bearish signals. The first one was obviously good. The next 3 were false and the most recent signal occurred in August. The advance since should be viewed as a consolidation.

From an Elliott Wave perspective, the rally from 192.62 occurred following the breakout of a triangle. Triangles lead to terminal thrusts. In other words, price comes back to the center of the triangle following completion of the breakout rally. The rally is in 5 waves (not labeled but the form is clear), indicating a high probability that a top is in place at 251.10. In this case, the center of the triangle is near 200.00.