GBP Technical Analysis

GBPUSD has enjoyed a strong run in 2019, picking itself up from a 1.2435 low to touch the 1.3000 level on an improving fundamental backdrop. This year’s mini-rally now sees GBPUSD touching the 200-day moving average and Cable has failed at its first attempt to break and close above here. Another attempt is expected shortly and if successful, the 38.2% Fibonacci retracement level at 1.3177 becomes the next target. This level also coincides with the November 7 high. If this level is closed above, the recent series of lower highs will be broken, adding an additional bullish nudge for the pair. GBPUSD have also made four higher lows in a row, so if 1.2832 – Thursday’s low - remains intact, the chart set-up for GBPUSD remains constructive.

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The British Pound is pulling back after testing above the 1.3100 level earlier this morning. This capped a strong topside run that showed up after the print of a fresh low less than a week ago. The month of January brought a stretch of strength into GBPUSD that likely caught many by surprise, especially considering the way that the year started for the pair: GBPUSD put in a rather large drop on January 3rd, slipping below 1.2500 temporarily as bears made a push. But the rest of January was marked by recovery, as GBPUSD climbed back above the 1.3000 psychological level to test above 1.3200.

As looked at last week, prices began soften from that bullish theme in the final week of January. And that pullback ran for more than a couple of weeks as GBPUSD tested below the 50% marker of the January bullish run. But since then, buyers have made a pronounced entrance back into the equation, particularly over the past two days of price action, helping to firm prices back above the 1.3000-handle.

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GBPUSD: Retail trader data shows 48.0% of traders are net-long with the ratio of traders short to long at 1.08 to 1. The number of traders net-long is 0.2% higher than yesterday and 2.7% lower from last week, while the number of traders net-short is 0.8% higher than yesterday and 22.3% higher from last week.

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The Euro launched a cautious recovery against the British Pound since I highlighted bullish reversal signals earlier this month. These were a Morning Star candlestick formation which was accompanied with positive RSI divergence. The latter indicated fading downside momentum in EUR/GBP’s downtrend that began in early 2019 which ended up bottoming above 0.8472 in March.

Since then, the pair has stalled under a range of former support-turned-resistance between 0.8668 and 0.8698 on the daily chart. Curiously, a bearish Evening Star candle was formed which may end up guiding the pair lower towards the psychological barrier between 0.8530 and 0.8472. If this is the case, keep an eye on the April 2018 lows around 0.8620 which has acted as support and resistance on multiple occasions.

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GBPUSD: Retail trader data shows 75.8% of traders are net-long with the ratio of traders long to short at 3.13 to 1. In fact, traders have remained net-long since May 06 when GBPUSD traded near 1.30919; price has moved 1.9% lower since then. The number of traders net-long is 11.4% higher than yesterday and 27.9% higher from last week, while the number of traders net-short is 13.4% lower than yesterday and 30.8% lower from last week.

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GBP/JPY - Sellers Remain in Charge

On May 6, GBP/JPY opened with a downside breakaway gap starting a fresh movement lower. On May 13 the price opened with a measuring gap to the downside showing more weakness and pushing lower to carve a lower low on May 17 at 139.55.

On May 21 GBP/JPY rallied towards 141.74. However, the pair pulled back in the same day and closed below 140.50 reflecting buyer hesitation. Alongside this development, the relative strength indicator (RSI) failed to break above (30) and continued moving within the oversold territory, emphasizing the strength of the bearish momentum.

Looking at the GBP/JPY daily chart shows the price testing the low end of the current trading range (139.00 – 140.50). If the pair close today below 139.00 the price may edge lower to test 137.95. Weekly support level at 138.46 is worth monitoring. A close below 137.95 will take GBP/JPY to a lower territory hinting towards 137.35. Weekly support at 137.66 needs to be kept in focus.

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GBPUSD: Retail trader data shows 79.2% of traders are net-long with the ratio of traders long to short at 3.8 to 1. In fact, traders have remained net-long since May 06 when GBPUSD traded near 1.31714; price has moved 4.0% lower since then. The number of trader’s net-long is 0.9% lower than yesterday and 4.1% higher from last week, while the number of trader’s net-short is 3.0% lower than yesterday and 17.7% higher from last week.

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A new month and a new quarter has not translated into a new reality for the British Pound. With Brexit continuing to serve as the albatross around the British Pound’s neck, the British Pound has failed to rally in an environment otherwise proving supportive for riskier assets. The most probable outcome of the Tory party leadership election and the implications for Brexit (and the broader economy) are the likely catalysts for the British Pound’s poor performance.

Now that there is a growing body of evidence that the UK economic backdrop has started to deteriorate – look no further than the June UK Markit/CIPS Services and Composite PMIs released earlier today – speculation is starting to build that, when the Bank of England is finally able to move on interest rates again, it will follow the growing horde of central banks leaning into more dovish policy.

The latest Brexit news suggests that the favorite for the next Tory party leader, Boris Johnson, will get no help from outgoing UK Prime Minister Theresa May. While outgoing UK PM May will return to the Tory backbench, reports today indicate that she will not publicly state that Boris Johnson’s no deal, hard Brexit plan won’t be detrimental to the UK economy. In fact, it sounds like outgoing PM May will be working to prevent a no deal, hard Brexit after she leaves office; dissent within the Tory party could spell trouble for a no confidence vote, ultimately paving the way for a UK general election.

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GBP/USD: Retail trader data shows 79.9% of traders are net-long with the ratio of traders long to short at 3.97 to 1. In fact, traders have remained net-long since May 06 when GBPUSD traded near 1.28987; price has moved 3.0% lower since then. The number of traders net-long is 2.0% higher than yesterday and 2.0% lower from last week, while the number of traders net-short is 2.6% lower than yesterday and 11.3% higher from last week.

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Last week, GBP/JPY corrected higher creating a higher high at 130.70 – its highest level in three weeks however, the pair closed on Friday with a Doji pattern reflecting the market’s indecision at this stage.
On the other hand, USD/JPY behaved similarly creating a higher high by the end of last week at 106.73. The pair closed in the red the weekly candlestick with 0.8% loss.

This week, the Relative Strength Index (RSI) has remained flat around 45 on both pairs, indicating the downtrend loss of momentum on one side and the lack of impulse to start uptrend move on the other.

Looking at the daily chart, we notice at the start of this week GBP/JPY opened with a downward gap below the low end of the trading zone 128.80 – 130.84. However, the price retuned back to the same zone closing mentioned gap.

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