The #RelativeStrengthIndex indicator is showing bearish divergence on the #GBPJPY weekly timeframe. But will the price reverse?
Today, we’re going to take a look at GBP/JPY.
The GBP is the strong currency, while the JPY is the weak currency. However, we could see a reversal because that’s what typically happens in those conditions.
Currency strength meter
In the currency strength meter, the GB Pound is the orange line near the top, and the JP Yen is at the bottom.
When these diverge, we typically get a reversal in the trend. However, we didn’t get a reversal the last time this happened in March: we went down to 100 and had a few good points, but nothing too aggressive.
We divergence now. The price is starting to make higher highs and the RSI is making lower highs, which is a sign of a reversal because the RSI is a momentum indicator.
The weekly timeframe price of GBP/JPY is forming higher highs, but the RSI is forming lower highs. This can be a sign of bearish divergence and reversal. The RSI is a momentum-based indicator so if it shows divergence, it is saying that the momentum of the market is fading.
The recent rally on the weekly timeframe is showing us that the momentum isn’t as strong as the previous rally. The momentum may start to shift to the downside because it can’t break above that previous high on the RSI indicator.
The only way that this would make me want to be a short seller is if the trend changes. The price is still trading at last week’s low; rejecting the low where buyers came in before. I don’t want to be short yet because I want to see the price take out this area, trade back, then make its move downside.
If we expect to see the market reverse on the weekly timeframe, we should see the daily trend turn and the market to form lower lows and lower highs. At the moment, the price is holding at the weekly lows so we need this to break before we can short the market.
I’m going to apply some figures on the weekly timeframe, so I’m going to put the weekly low, high, close, open in the same area.
In the four-hour timeframe, the prices in the weekly highs and lows were rejecting last week’s low. If the price takes out this area, then I’d look for the trend to continue to the upside. I’m thinking that the JP Yen will still weaken, and that we’d see the GBP/JPY move higher.
We could also look for the potential of the price to break out of last week’s close at 155.12 and break below 154.78. So, I’m looking for more downside to this market.
The four-hour timeframe is currently showing a double bottom pattern, which makes last week’s close of 155.12 very important. If the double bottom pattern is completed and we trade above that level, then we will likely see the trend continue. If we reject the level and form a false breakout, then the price could reverse in line with the weekly divergence.
Other factors will also come in play, but that 155.12 is going to be important because if the price breaks above that area, then it’s changing trend on the four-hour timeframe. It will be forming a double bottom at that point. If it makes a false breakout, then we may see the momentum shift to the downside.
I’m going to look for different options on the GBP/JPY. The weekly is showing divergence, so we could see a reversal soon. We need the strength and weakness to agree before we can trade this short. Hopefully, we get a break of 154.78 and the weekly low. If the price can sustain below, then it’s going to be a good short opportunity.
If you’d like to try trading the GBP/JPY currency pair, you can start with at least $100 when you open a live account.