British Pound Technical Forecast: GBP/USD, GBP/JPY

British Pound Technical Forecast: GBP/USD, GBP/JPY

• It was a week of strength for the British Pound in both GBP/USD and GBP/JPY, even with the Thursday rate cut from the Bank of England.
• GBP/USD can remain an attractive venue for USD-weakness and the Dollar is in the spotlight next week with the US CPI report. In GBP/JPY, the big question is whether bulls can finally test the 200.00 psychological level that so far has remained an evasive theme.

British Pound Technical Forecast: GBP/USD

Cable was mired in a massive sell-off two weeks ago as USD strength had driven after the FOMC announcement and the Core PCE release. With the Fed not sounding so sure about near-term rate cuts and inflation in the US continuing to move-higher, there was the very real question as to whether the Fed would be able to cut this year as markets have long expected. But, the NFP report on Friday helped to bring USD-weakness back to life and that theme largely remained for much of the last week.

As I had looked at on that Friday, GBP/USD remained an attractive area to work with that USD-weakness. The 1.3145 level that had set support back in May was back in ahead of the NFP report, and that led to a vigorous bounce in the pair that held through last week’s open.

In the Tuesday webinar I looked at using that bounce and a short-term higher-high to work with bullish continuation themes, and that allowed for the build of an ascending triangle formation ahead of the Bank of England rate decision on Thursday. And even with the BoE cutting rates again, GBP/USD broke out, showing a rate cut rally as prices took out the 1.3400 level. As of this writing, the pair is working on its sixth consecutive daily gain and this is a difficult move to chase – but there is scope for support at a couple of nearby spots.

The 1.3395-1.3414 level was the zone I was using for a support bounce in mid-July. That’s now a nearby area of possible support, and below that, we have the resistance from prior support that made up the resistance side of the ascending triangle formation ahead of last week’s breakout, plotted from 1.3365-1.3371.

GBP/USD Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

 

British Pound Technical Forecast: GBP/JPY

Coming into the week there were legitimate concerns of larger breakdown themes in Yen-pairs. While the prior Thursday had seen a strong reaction on the back of the Bank of Japan rate decision, the rout on Friday saw GBP/JPY break through multiple supports on the way down towards the 195.00 area. I looked into that at the start of the week, and that led to a brisk four-day recovery as price jumped right back up towards the 199.00 area, with a boost from the Bank of England rate decision.

The challenge now is proximity to resistance to go along with distance away from recent swings. I’ll look at some shorter-term levels after the next chart.

GBP/JPY Daily Chart

Chart prepared by James Stanley; data derived from Tradingview

GBP/JPY Shorter-Term

From the four hour chart RSI has already made a round trip over the past week, from oversold last Friday into overbought this Friday. This doesn’t necessarily mean that the pair has to reverse, but caution should be exercised given how stretched the move has already become. Instead, there’s support potential at the 198.08 level which is the top of a long-term gap, with the 197.06-197.21 level sticking out below that, as it was a spot of resistance on the way back up but hasn’t yet shown much for support since the breakout.

Below that, the 196.19-196.42 level I had looked at earlier in the week remains of interest and this is what I would currently consider as invalidation for bulls, as a breach below that will look like a failed bullish trend.

GBP/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist