GBP/JPY Technical Analysis: Oversold bounce likely before drop to 140.00, Japan's core CPI misses estimates

The GBP/JPY pair is looking south, as indicated by a series of lower highs and lower lows. However, a minor bounce could be in the offing before further downside unfolds. Further, a convincing move above 142.20 will likely turn the tide in favor of the bulls.

Daily chart

As seen above, the pair closed well below the Dec. 10 low of 141.18 yesterday, validating the bearish lower highs and lower lows and descending 5- and 10-day moving averages (MAs). The 14-day relative strength index (RSI) is also reporting bearish conditions below 50.00.

The pair, therefore, risks falling further 140.00, though a minor bounce could precede that drop, as the RSI on the hourly and 4-hour chart is reporting oversold conditions.

15-minute chart

The RSI on the 15-minute chart has diverged (higher lows) in favor of the bulls. Hence, the pair could revisit levels above 141.00 before falling to 140.00.

The overall bearish outlook would be invalidated if the potential oversold bounce ends up pushing the pair above 142.20. That would confirm a falling wedge breakout.

Japan's November annualized core inflation came in at 0.9 percent, missing the estimate of 1 percent growth. The CPI excluding fresh food and energy rose 0.3 percent, also missing the forecast of 0.4 percent. All this indicates that inflation is still miles away from BOJ's inflation target. Thus, the BOJ is unlikely to begin policy normalization any time soon.

So far, the data have not put a bid under the GBP/JPY, possibly because of the drop in the UK consumer confidence to 5.5-year lows.  

Trend: bearish