GBP/JPY tumbled on Wednesday, following headlines that the UK government looks to stop Parliament’s efforts to avert a no-deal Brexit. On Tuesday, the pair traded higher, but hit resistance slightly above the 130.15 barrier, and then started to retreat, with the aforementioned news accelerating the slide. Overall, the rate continues to trade below the downside resistance line drawn from the high of May 3rd, and thus, we would consider the near-term outlook of this pair to be cautiously negative.
That said, we would like to see a decisive dip below the 128.25 barrier, which provided support on August 20th and 25th, before we get confident that some further near-term declines are in the works. Such a dip could initially pave the way towards the low of August 14th, at around 127.45, the break of which could carry extensions towards the low of the day before, near 126.80.
Taking a look at our short-term oscillators, we see that the RSI turned down and fell back below its 50 line, while the MACD, although fractionally above zero, lies below its trigger line and points down. It could turn negative soon. These indicators suggest that the rate may start picking negative momentum soon and support somewhat the notion for some more declines, at least in the short run.
In order to abandon the bearish case and start examining the chances of a possible bullish reversal, we would like to see a decisive break above 131.83. Something like that could also confirm the break above the aforementioned downside line and may encourage the bulls to drive the battle towards the 132.95 zone, defined by the high of July 31st. Another break, above 132.95, could see scope for advances towards the inside swing low of July 18th, at around 133.90.