On a technical basis, the GBP/JPY pair appears to finally be breaking below the massive symmetrical triangle pattern that has kept rates contained since New Year’s Day. As of writing, the pair is currently testing support in the 170.80-171.20 zone, which represents the convergence of the 50- and 100-day moving averages; if rates are able to close conclusively below this area, a bearish continuation is likely in the weeks to come.
Beyond the price pattern itself, the pair’s RSI indicator has also formed a symmetrical triangle over the same period. As a reminder, a breakout in an indicator pattern often leads and confirms a breakout in price itself. Given the recent break lower in RSI, traders can have more confidence that the breakdown in GBP/JPY is legitimate.
To the downside, traders will initially watch for a return to the previous support levels around 169.50 and 168.00. On a longer-term basis, a negative shift in UK economic data could eventually drive the GBP/JPY all the way toward 165.00, the 200-day MA, which has not been tested since late 2012. Of course, a bounce off converging MA support is also possible, but the overall bias will not turn higher unless the pair breaks above previous resistance at 173.50.