A Follow Up to the EUR/GBP and the USD/JPY

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 Follow up to The Much Overlooked EUR/GBP

Yesterday, the resilience in the headline EUR/GBP cross rate was also visible in EUR/GBP. There was not really one event to explain the move. The pair was simply captured in a gradual uptrend/repositioning that lasted throughout the session. The pair was seen in the 0.8040 area at the start of trading in Europe. The rebound accelerated early in US trading, in line with the price pattern of EUR/USD. There was a lot of analysis on the screens that a deepening of the crisis in Europe would force the BoE to print more money. However, there was no specific reason why this reasoning would come into play right now.

EUR/GBP closed the session at 0.8098, compared to 0.8031 on Tuesday evening.

Today, the calendar in the UK is again thin. So, trading will again be driven by global factors/overall sentiment on the single currency. At least for now, the repositioning in EUR/GBP continues. The pair is again above the 0.8100 pivot.

From a technical point of view, the EUR/GBP cross rate is showing tentative signs that the decline is slowing. Early May, the key 0.8068 support was cleared.

This break opened the way for a potential return action to the 0.77 area (October 2008 lows). Mid May, the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. Continued trading above the 0.8095 area (gap) would call off the downside alert. A first attempt to do so was rejected last week. The pair tried several times to regain the 0.8100 area early this week, but there were no follow-through gains. We still prefer to sell into strength for return action lower in the range.

After yesterday’s report, there was only one move that was really relevant for USD/JPY trading. The pair hovered in a tight sideways range roughly between 79.50 and 79.75. The pair was hammered as a poor US retails sales report hit the dollar across the board. USD/JPY tumbled to the 79.35/30 area. The pair is still trading in that area this morning.

Of late, there were some tentative signs that USD/JPY could draw some support from the rise in core bond yields. However, a sustained rise in (US) bond yields is far from a done thing. So it is too early to jump on that move. The topside in this cross rate might be capped for now. More overall dollar weakness might push USD/JPY back low in the recent consolidation pattern. 

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About: FX Empire Analyst - Barry Norman

Barry produces a private Daily Market Review newsletter that is distributed around the globe to over 25,000 subscribers and recently published a book on Options Trading that is available from amazon.com

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