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I’ve got my one good eye locked on this Guppy correction play for quite some time, and I seem to be seeing more confirmation of bullish momentum returning.

Long GBP/JPY Idea

I’ve had this resistance-turned-support correction setup on my radar for nearly a month already, and it looks like the area of interest is indeed holding as a floor.

Price appeared to dip slightly below the 38.2% Fib and it looked like a larger correction or a downtrend was underway, especially since the pair started to trade below a short-term falling trend line. However, this resistance was eventually broken, indicating that pound bulls are ready to charge again.

GBP/JPY 4-hour Forex Chart
GBP/JPY 4-hour Forex Chart

I hesitated to go long right on the test of the 148.00 handle because GBP fundamental were looking shaky at that time. Headlines were mostly focused on Brexit concerns, particularly on fading support for Prime Minister May on the domestic front.

Looking at the bigger picture, however, reminds me that U.K. data has shown consistent improvements over the past few months and that BOE rate hike expectations are still very much in play. After all, inflation continues to tick higher and this might take an even larger toll on consumer spending and growth if policymakers don’t rein it in.

Earlier this week, there have been a couple of upgrades to U.K. data estimates, underscoring the possibility of BOE tightening before the end of this year. As for the Japanese yen, the pickup in risk appetite stemming from easing geopolitical risks and slightly weaker odds of a December Fed hike is dampening its gains.

I’m considering going long at market with a stop below the spike down to 146.90 and a target at the swing high near the 153.00 handle. What do you guys think?

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