Pullback within the established short-term downtrend

• GBP/JPY is correcting in a short-term downtrend.
• Odds favor a smaller retracement once the correction ends.

GBP/JPY retreated to resistance at 186.51 in a counter-trend reaction after hitting new lows.

The descending sequence of highs and lows since the September 2 high suggests that the pair is in a near-term downtrend.

GBP/JPY 4 Hour Chart

Since it is a principle of technical analysis that “the trend is your friend”, more weakness is expected.

Hence, there is every chance that the pullback will soon run out and prices will resume their downtrend.

A break below 183.72 (September 11 low) would confirm a lower low at the next bearish target at 182.82 (August 6 low), followed by 180.06, the August 5 low.

The Relative Strength Index (RSI) momentum indicator shows bullish convergence with price. On September 4, the RSI became oversold as the price declined; on September 12, the price is even lower, but the RSI is actually higher. Non-correspondence is a slightly optimistic indication.