In this short forex analysis let’s look at how an RSI divergence may be forming with GBP/JPY and AUD/CAD pairs at 4H timeframe at RSI 14.
For GBP/JPY an RSI bullish divergence may be forming. RSI bullish divergence happens when RSI is getting higher lows while the price is getting lower lows. The current GBP/JPY RSI divergence may be weak as it is not from a strong downtrend but it is still a divergence nonetheless.
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Check out the GBP/JPY 4H graph below as of today May 14, 2020 – pinch to zoom image.
Below we can see the previous RSI Divergences with this currency pair. The Feb-March 2020 RSI Divergence took a long time to form but the gains were massive.
In terms of support and resistance, the current price level is sitting on a 50% Fibonacci level. At this point, there is still no indication whether this will be a support level or not. Note that Fibonacci Levels 38.2%, 50%, and 61.8% are the more commonly used levels for drawing support and resistance. See the below picture on how Fibonacci Retracement Levels were established.
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AUD/CAD, on the other hand, is forming a relatively strong RSI bearish divergence and the price may go down soon. This divergence has been forming since mid-April with a clear price uptrend. RSI divergences are best traded as a trend reversal indicator. If the price is trending up, look for RSI bearish divergence, when the price is trending down, look for RSI bullish divergence. Further to the divergence, AUD/CAD has been respecting the resistance level for more than a week now.
As always take this analysis with a grain of salt. This is not an investment advice and no one can predict with absolute certainty where prices will go. We will go back to this article a few days from now to see what happens.
Update May 19, 2020– GBP/JPY has indeed gone up by approximately 128 pips. AUD/CAD, on the other hand, is still consolidating. See GBP/JPY chart below.
Update May 22, 2020 – AUD/CAD Bearish divergence did not materialize and is now in new levels of support and resistance.
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