The British Pound was strong in June because the expectation for the BoE to raise interest rates has been moved up after bank gov. Mark Carney hinted at a possibility of a rate hike at the end of 2014. This week, strong UK data helped the GBP extend that strength.
This week, we saw the Manufacturing PMI for June (57.5) improve faster than expected. The Construction PMI (62.2) came in at a 4-month high for June. Even though the Services PMI (57.7) was slower than the 58.1 forecast, the service employment component rose at a record pace (58.8).
GBP/JPY shot up from 172.37 to 175.36 so far this week. The 4H chart shows the breakout earlier in the week, and a straight follow-through.
GBP/JPY price action during the 7/3 session continued higher, and broke above the previous high on the year of 174.84. This signals a bullish continuation looking at the rest of Q3. However, as we see the RSI in the 4H chart push above 70, we should anticipate some dips and traders buying on those dips.
If a pullback does happen, the first level to monitor for support is the previous resistance pivot around 174.00. The bullish outlook remains in play until a break below the rising trendline that came up from May’s low around 169.55.
You would have to look at the monthly chart to see where we might find a key level of resistance. As you can see, price has been bullish since 2012, reversing the decline we saw during the financial meltdown.
There are a couple of strong factors to consider for resistance. The 180.00 level could be a psychological resistance. The RSI in the monthly chart is elevated, and would again show overbought condition if price does approach 180. Above that, the 50% retracement is around 183.94.
The GBP/JPY is not showing any signs of slowing down. So until we see the RSI clearly above 70 in the monthly, weekly and daily charts, we should not consider the market overbought. Right now, we have the daily chart in overbought area, but the weekly RSI is around 65.5, and the monthly RSI is around 69.55. Only the daily and 4H is above 70, so we can anticipate some short-term correction after the current breakout to new highs on the year. But look out for buyers on the dip in the 173.50-174 area.
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