Forex Video Briefing (6/26) – GBP/JPY’s Reaction BoE’s Proposal
The Bank of England is introducing a cap on mortgages. The main proposal is that no more than 15% of mortgage lending will be allowed to go for 4.5x the borrowers income. This is to go into effect Oct. 1st. The British pound liked it. Let’s take a look at the GBP/JPY which is at a crossroad and at the cusp of bullish continuation.
GBP/JPY has been retreating after failing to close above 174 last week. After finding support at 172.70 and after the Mark Carney’s press conference we saw GBP/JPY attack the falling channel resistance from last week.
So far traders in early US session has faded GBP/JPY back into the falling channel. However, if price can hold above 173, and the 1H RSI above 40, the upside risk remains. Otherwise, with a break below 173 and the RSI below 40, this week’s bearish correction is likely to extend.
The failed bullish continuation signal would turn into a bearish correction signal especially if price extends below 172.70, completing a head and shoulders. If this is also marked by a break below the rising trendline in the 4H chart from May’s low of 169.54, then the market is opening up a bearish outlook.
Also note that in the 4H chart, the RSI is holding above 40. If it falls below 40, it should reflect the bearish correction scenario.
With the GBP/JPY at the crossroad, let’s take a look at USD/JPY to get a sense of the market from the JPY-side. We know GBP/JPY rallied off GBP-strength, but JPY is also strong keeping USD/JPY near the 101.60 low. If 101.60 breaks, GBP/JPY is likely to extend the bearish continuation scenario. If USD/JPY rallies above 102, GBP/JPY is likely to be in the bullish continuation scenario.