GBP/USD
Pound positioned at key support level
We remained flat GBPUSD last week as the speed of the pair’s decline did not offer lucrative entry points from a risk-reward perspective. The pair declined 3.12% to open this week at a long-term support line in place since March 2002.
Looking ahead, we see two possible scenarios: GBPUSD could either issue an outright break of current support or begin with a pull-up to offer a better short entry point. In either case, we view the dominant bias as decidedly bearish. An upward correction would likely meet resistance near 1.9320, a multi-year support/resistance level. An Inverted Hammer at support (see inset) lends credence to the retracement scenario. The eventual support break opens the door for extended selling to test the 1.80 level.
GBP/USD Strategy
Flat.
USD/JPY
Near-term top in place?
Last week, we opted to remain flat as USDJPY threatened a downward correction showing a Hanging Man below an apparent Double Top in the 108.20-80 area. Broadly speaking, we have advocated USDJPY upside since the pair broke above resistance established by a trend line connecting highs since June 2007 on 6/10 (not shown). As the dollar rally accelerated, we saw the pair surpass resistance and suggested to go long on a corrective pullback to 108.70 - 109.00 with a 'soft target' at 113.13 . The intense dollar rally did not take enough of a respite to trigger entry, with USDJPY accelerating higher to surpass the 110.00 mark.
Current USDJPY positioning sees the pair showing a Hanging Man candlestick, suggesting the possibility that the rally is ready to reverse. As mentioned in the EURUSD section above, the US Dollar Index is positioned below a resistance trend line that has not been breached since 2005. A correction is likely to find support near the 109.00 level, offering a long entry opportunity.
USD/JPY Strategy
Flat.
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