GBP/JPY – Rising Wedge Suggests Pending Reversal

3 min read
HubertM

HubertM

Forex broker

Dear Trader,

The GBP/JPY has formed a long-term rising wedge pattern, also known as a leading diagonal.

Price is coming to a critical decision point very soon and signs point towards a strong reversal in the medium term.

This analysis will take a closer look at this very interesting currency pair.

Potential Leading Diagonal Indicates Bearish Reversal

The daily chart (above) of the GBP/JPY has been forming a rising wedge since mid 2016. The internal wave structure has a lot of signatures that suggests a leading diagonal makes up Wave 1 of a potential new long-term uptrend.

Generally this chart pattern is followed by a sharp bearish correction, which forms Wave 2 of the new uptrend (as indicated by the black lines).

If this is true, the GBP would soon need to show very strong bearish momentum.

 

Lower Timeframes Indicate that Wedge is Incomplete Still

Looking at 4 hour chart, it appears that internal wave b of 5 was an irregular flat. Therefore another impulsive upwards move should occur in final wave c of 5. We are seeing the beginning of this bullish move since the 11th of January. Wave 1 of the impulse should now be complete, therefore another down-up-down-up is likely.

The final swing of a leading diagonal can often break through the resistance trend line of the rising wedge pattern, before price suddenly makes a sharp u-turn and heads downwards.

It is therefore prudent to expect the final bullish push to possibly go as high as 156. Thus waiting for a complete 5 wave structure is important before considering medium-term short entries.

All the best along your trading journey…
Hubert
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