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  • GBP/JPY gained strong follow-through traction for the second straight session on Tuesday.
  • Acceptance above the 61.8% Fibo. level supports prospects for a further appreciating move.
  • Overbought conditions on hourly charts warrant some caution for aggressive bullish traders.

The GBP/JPY cross attracted some dip-buying near the 138.15 region on Tuesday and built on the previous day’s strong gains of over 300 pips. The strong follow-through momentum for the second straight session pushed the cross to two-month tops during the mid-European session on Tuesday.

The latest optimism over the COVID-19 vaccine and hopes for a last-minute Brexit deal forced investors to push back the expectations of negative BoE interest rates to June 2021. This, in turn, was seen as a key factor that triggered a fresh bout of aggressive short-covering around the British pound.

With the latest leg up, the GBP/JPY cross has now moved above the 61.8% Fibonacci level of the 142.72-133.05 downfall. Given the overnight breakthrough a near one-month-old descending trend-line resistance, the set-up favours bullish traders and supports prospects for a further appreciating move.

That said, technical indicators on intraday charts are already flashing overbought conditions and warrant some caution for aggressive bullish traders. Hence, it will be prudent to wait for near-term consolidation, or a modest pullback to the 139.00 mark before placing fresh bullish bets.

Nevertheless, the GBP/JPY cross now seems poised to surpass the key 140.00 psychological mark and aim towards testing the next major hurdle near the 140.65-70 region. Some follow-through buying has the potential to lift the cross further towards 141.00 mark en-route the 141.30-35 supply zone.

GBP/JPY daily chart

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Technical levels to watch