The U.S. dollar was flat versus major currencies in the foreign exchange this past week as the Thanksgiving Day holiday had traders in quiet mode. The 10-year Treasury yields finished the trading week almost unchanged, while major stock indices set another all-time high in low-volume trading. The British Pound outperformed the rest of the majors as political news and positive Brexit expectations supported the Cable, while the economic calendar was almost empty in the UK. However, the upcoming week promises to be extremely busy as besides the US Non-Farm Payroll report and rate decisions by two major central banks, several geopolitical issues should shed light on the near future of the financial markets.
This article is about the GBP/JPY cross-rate, its technical outlook and short-term forecast. GBP/JPY has finished a 5-week consolidation period, breached the sideways channel on the upside and continued the recent uptrend. The pair gained +1.58% or 220 pips (four-digit quotes), and there is a strong view that that’s only a beginning.
Although the U.S. dollar index remained flat, the Sterling gained strength, while the yen weakened on the back of the growing risk-appetite of equity investors around the globe. What’s interesting, the British stock index – FTSE 100 – rose together with the Pound, which is quite unusual as both assets have had an opposite correlation recently. GBP/USD charted the highest weekly close in five weeks, while USD/JPY closed Friday at the highest rate since May 2019. The fact that both major pairs were moving in the same direction caused such an impressive performance of the cross-rate.
The weekly chart below shows that GBP/JPY has just breached the 50% Fibo retracement level of the downtrend, which started in January 2018 and bottomed out in August 2019. As long as the resistance is breached by the weekly close rate, the nearest target for the bulls is placed at 144.676 (the 38.2% Fibo). There is also a median green line on the chart, which connects two lows printed in October 2016 when the Sterling was bottoming out after the shocking Brexit decision and a local bottom in August 2018 when the currency retraced north. The pair was also consolidating around that median line in January – May 2019, so I suggest that the real long-term target might be 152/155 yen per pound for the first quarter of 2020.
Another weekly chart setup has Ichimoku Cloud trend indicator, ADX and TSI. Although the Ichimoku leading span is still bearish, GBP/JPY charted two significant achievements. First, the pair closed the week above the Cloud for the first time since May 2018 (18 months!). Second, Ichimoku Conversion Line and Base Line performed the bullish crossover. Next, the Average Directional Index has quite a large positive surplus. The mainline is headed south but it is still above the threshold, which points to comparatively strong bullish momentum. The True Strength Index has the Long Line in the positive territory, while the Short Line is headed in the same direction. All of the signs mentioned above are bullish.
One more chart is shown below. On the daily timeframe, GBP/JPY looks confident to continue the uptrend as well. 13-day RSI is above the middle line and it has more room to go before the overbought condition is achieved. MACD is bullish with its lines about to cross each other back into ‘continuation mode.’ Williams Alligator is in eating regime, which is supposed to indicate the uptrend continuation. It also shows two support levels for the week ahead: 140.47 and 139.89. I would gladly use the opportunity to add longs of GBP/JPY in my portfolio in that range if the market would be so kind to retrace back there. Best wishes this week traders!!!
This post is contributed by MyFxLab. MyFXLab provides daily technical analysis written by professional traders. The site was founded by former Goldman Sachs FX traders and executives from some of the world’s largest brokers.
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