GBP/USD
As mentioned yesterday, the daily and weekly charts are not necessarily telling the same story right now which may suggest that while the pair is looking bearish in the short term, any sell-off may be limited. That said, it could just be a case that the 20-week SMA hasn’t been broken yet but this is certainly something worth keeping a close eye on.
For now, cable still looks as though there’s more downside to come. We’ve seen a mild correction in the pair so far today, although I’m not convinced yet that it’s over. While it has pulled back from the 38.2 fib, which may point to a shallow retracement, the fact that the 50 fib (1.6776) – yesterday’s highs to today’s lows – lines up so well with the previous lows suggests to me that there’s more upside to come.
EUR/USD
We’ve seen further selling in the euro this morning following quite a bearish couple of days. The pair has broken below the range that it was trading in before we saw the spike in volatility at the end of last week which suggests the bearish trend is still we a truly in tact. That said, the 4-hour chart suggests we may be about to see a correction in the pair, with the latest completed candle forming a hammer and the current candle looking a little bullish.
Should we see a close above the midpoint of the candle that came before the doji, so above 1.3539, we would be left with a morning star formation, a bullish setup. At this stage there’s no evidence to indicate a trend reversal and therefore I believe it’s more likely to just be a correction.
With that in mind, the key levels should be the major fibs from 6 June highs to today’s lows. The first of these is 1.3580, 38.2% retracement, followed by 1.3598, 50% retracement. The latter would strike me as more likely given that it lies so close to a round number, 1.36. It also falls close to the level that was previously providing significant support.
USD/JPY
The setup on the yen is looking quite bullish, although I’m finding it difficult to get too carried away with that for two reasons. The triangle that has formed on the 4-hour chart is typically a bullish continuation pattern. It also has many other the characteristics of a pair that I would normally associate with being bullish, such as the previous resistance, 102.13, now providing support and the Fibonacci retracement levels being well respected during the ascent. That said, the pair is trading at the top of what has become quite a well defined range – 101.30-102.70.
This automatically makes me question the validity of this bullish setup. Aside from this, we’re currently seeing a lot of pressure on the triangle support, which can often signal that a breakout is coming as the bears are not giving up. We’re also approaching the apex of the triangle and so a breakout would need to come soon. Ordinarily, this comes around two thirds of the way into the triangle which would mean a breakout is already overdue. Should we see a break to the downside, support should be found below around 102.20, followed by 102.10, both of which are previous lows.
Alternatively, if we see a move higher from here, based on how these setups usually behave, I would be inclined to believe that the odds of a breakout to the upside would be increased. As always though, this is far from guaranteed, as is always the case when predicting price action.
Above here the 61.8 fib (1.6786) could provide further resistance and until these are both significantly broken, I will remain bearish on this pair. If we do eventually see a break lower, the next major support should come in around 4 June lows, around 1.67.
