- GBP/JPY charted a bearish outside day on Tuesday.
- A break above the bearish candle’s high would confirm a bullish reversal.
GBP/JPY is currently trading largely unchanged on the day at 135.63, having created a bearish outside day candle on Tuesday.
A bearish outside day occurs when the day begins with optimism but ends with a pessimistic note, engulfing the high and low of the preceding day. As a result, the candlestick pattern is considered a bearish reversal or bearish continuation pattern depending on its position.
In GBP/JPY’s case, the bearish outside day has appeared following a significant drop and has weakened the bullish case put forward by the positive divergence (higher lows) of the 14-day relative strength index (RSI).
That said, the focus is on today’s close. A bearish continuation would be confirmed if the pair closes today below 135.39 (yesterday’s low). On the other hand, a close above the bearish outside day’s high of 136.28 would confirm a short-term bullish reversal and open the doors to 137.79 (July 1 high) and the 50-day moving average (MA), currently at 138.57.