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  • GBP/JPY has backed off from highs near 141.50 registered on Thursday.  
  • A deeper drop to key support at 139.32 looks likely due to the bearish divergence of a technical indicator.  

GBP/JPY is currently trading near 139.70, representing a 0.22% loss on the day, having hit a high of 141.50 on Thursday on Brexit optimism.

The ongoing pullback is likely to be extended further to the 50-hour moving average (MA) support, currently at 139.32, as the 4-hour chart is reporting a bearish divergence of the relative strength index (RSI). Further, the long upper wick attached to Thursday’s candle and the overbought reading (above 70) on the RSI indicates buyer exhaustion.

It is worth noting that the 50-hour MA consistently reversed pullbacks throughout the recent 1,100 pip rally from 130.43 to 141.50. The short-term outlook, therefore, would turn bearish if the 50-hour MA support is breached.

A strong bounce from that key support may yield a re-test of Thursday’s high of 141.50, although as of now, that looks unlikely.

4-hour chart

Hourly chart

Trend: Deeper pullback likely

Technical levels