Daily Technical Update
May 19, 2010

GBP/JPY: RSI Divergence May Suggest Continuation


1H: A bullish divergence can be spotted in the 1H time-frame of the GBP/JPY chart. This comes after a slide predicted in the 5.17.2010 Video Update.
Divergences are conventionally assessed as signs of reversal. In this case the trend is bearish, so the divergence warns of a correction.
The thing is, when a divergence forms and a negative reversal occurs, it is actually a bearish continuation signal, to at least retest the previous low and perhaps the 150% retracement level at 129.50.
The divergence does warn that there may be bottoming action forming after this test of the 129.50 area. Higher time-frames suggest some correction may be due:



Daily and 4H: The daily shows that the market is in a declining channel. A swing projection targets 128.00, below the 129.50 target we projected in the 1H time-frame.
But 129.00 is where a 500 pip rejection occurred two Thursday’s ago.
The RSI in the Daily is oversold, but shows healthy bearish momentum.
The RSI in the 4H time-frame shows potential for a bullish divergence, but we see no implications yet as the RSI stays below its SMA5.
Further bearish action is expected towards 128 in the short term if, looking at the 1H time-frame the market breaks below the minor low at 129.75.
Fan Yang
Currency Analyst
Commodity Trading Advisor

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