The British Pound backed down this week after riveting uptrends helped drive the currency to fresh two-year highs against both the US Dollar and the Japanese Yen. Against the Euro, the trend was clear coming into March but has since stalled with a key Fibonacci level coming into play.
In the US Dollar, the pair remains in what’s been a very strong up-trend since October of last year, represented by a trend channel on the Daily chart below. Notice the recent support tests on the bottom portion of that channel, highlighting the recent pullback that I’ll look at in deeper detail below; but take into account the fact that the US Dollar has been relatively strong recent and the fact that this up-trend has remained in the channel with the consistency has is somewhat encouraging, particularly for those looking at a return of US Dollar weakness as the Q2 open nears.
GBP/USD: Cable Caught at the Big Fig
On a shorter-term basis, the pair had come into the FOMC rate decision with breakout potential. I had looked at a couple of different resistance variants ahead of the announcement, with particular focus on the 1.4000 big figure that had already seen four separate tests in the previous three weeks. Each of those had failed, and when USD weakness showed after the FOMC rate decision, GBP/USD took a trip back up to 1.4000 for yet another test. But, similar to the prior four instances, with this one getting a bit of a push from the Bank of England, bulls failed, and prices pulled back.
While the bullish trend in GBP/USD has been very consistent going back to last year, recent, the bullish trend in GBP/JPY has been even more aggressive, taking on a near-parabolic like shape as a potent combo of GBP strength and JPY weakness has propelled the pair to two-year-highs.
This week, however, looks as though it will be the first since the January open in which GBP/JPY has gone down weekly. Also, from the weekly chart – the RSI indicator has grown to its most overbought since 2014, highlighting just how one-sided this trend has become.
This week saw the 152.50 psychological level come into play, and prices pulled back to find support at a Fibonacci level plotting around 150.87. This can keep the door open for short-term bullish momentum strategies, but for those with a longer-term basis, taking a step back given those extreme overbought readings may be prudent until matters settle a bit. As such, the forecast for next week will be set to neutral as we may be at an important pivot in the trend given the upcoming quarter-end after a solid start to 2021 trade.
The normally sleepy pair of EUR/GBP has been abnormally active so far in early 2021 trade, driven by a growing divide between the UK and Europe around vaccine progress. The pair did finally start to probe some support a few weeks ago, which helped to hold the lows, and this plots around the 78.6% Fibonacci retracement of last year’s major move.