GBP/USD touching $1.7000
GBP/USD had a successful week, surging from the $1.6740 support on Wednesday to the levels slightly below the major $1.7000 resistance on Friday.
On Wednesday UK released strong labor market data with unemployment falling from 6.8% to 6.6% in May (lowest level since 2009) and the clamant count falling by 27.4K.
Thursday was a lucky day for the sterling buyers with the GBP/USD surging by almost 100 pips in the US session. Weak May US retail sales revived concerns about the pace of recovery of the largest economy in the world, pressuring the greenback. The decline in the US Treasury yields pushed the GBP higher against the USD.
Late on Thursday the BoE Governor Marc Carney left the door for a sooner-than-expected rate hike open. He promised that the BoE rate increases will be gradual and limited and could take place sooner than the markets expect. Investor’s expectations shifted to from H1 2015 to the late 2014.
The technical picture for the pair turned clearly bullish this week. The pair bounced from the lower border of the Sept. 2013 bullish channel, retesting the 100-month SMA (currently at $1.6955). The pair is now trying to form a kind of “bullish engulfing” candle on the monthly chart. Weekly close above $1.7000 could open the way to $1.7320 (50% Fibo from the 2008 sharp drop). However, the question is whether the buyers will manage to break above the $1.7000 resistance area.
The market is clearly overbought and there is still a high chance for the $1.7000 mark to cap the buyers’ optimism. Support is seen at $1.6800, $1.6740/30, $1.6700, $1.6650 and $1.6580. A close below $1.6740 is needed to negate the current bullish outlook.
By the way, don’t forget to watch the EUR/GBP cross. It fell to a fresh 16-month low this week, pressured by the ECB and BoE monetary policies’ divergence.
USD/JPY under bearish pressure
USD/JPY holds below the Dec. 2013 – 2014 trend resistance. This week the pair broke below the lower border of the mid-May – June bullish channel, weakening from 102.60 to 101.60 (200-day MA).
The decline of the pair can be fully explained by the fundamental factors. US economic data failed to inspire the buyers: retail sales added only 0.3% in May. Meanwhile, the Bank of Japan left monetary policy unchanged on Friday, maintaining the annual QE volume at 60-70 trillion yen. Japanese yen strengthened as expectations of additional BoJ easing in the near term have become significantly lower.
In a long term we maintain a bullish view for the pair and expect the decline to be limited by the 100.80 support. This is the 2014 low, the 55-week SMA and the top of the weekly rising Ichimoku. Resistance is seen at 102.80, 104.10 and 105.40.
Note that the US 10-year Treasury yields are on the rise since late May, so USD/JPY is likely to follow. However, for now the pair lacks a strong driver to resume the rising trend.
Next week watch the Fed policy meeting decision on Wednesday – if the Fed pauses to taper, bearish pressure on USD/JPY will increase. The BoJ Governor Kuroda delivers a speech on Friday.