British Pound Forecast: GBP/USD, GBP/JPY

British Pound, GBP/USD, GBP/JPY Talking Points:

• GBP/USD tested below the 1.3000 big figure this week but, so far, bulls have defended that level as USD has shown a bit of pullback from the 200-day moving average. While the pair has been battered, it can be one of the more attractive major pairings for USD-pullback scenarios, as discussed in this week’s US Dollar Price Action Setups.
• GBP/JPY Is continuing to test a key Fibonacci level for a third week and there’s also an element of support showing at prior resistance.
• I look into each of these markets every Tuesday in the live webinar and you’re welcome to join the next installment: Click here for registration information.

It was a fast turn in GBP/USD to start Q4 trade, but that statement can be spanned across most major currency pairs as the US Dollar came back to life, breaking above a falling wedge formation and continuing to run until this week’s test of the 200-day moving average in DXY.

There’s some important context between the major pairs of EUR/USD and GBP/USD, however.

Last month, it was the 1.3000 level in GBP/USD that led into a strong bullish run, with the pair eventually driving up to the Fibonacci level at 1.3414 before finally starting to find sellers. At the time of that 1.3000 defense, there was a similar show in EUR/USD at 1.1000. In both cases, buyers showed early in anticipation of the swing, with lows printing just two pips above each respective big figure. In EUR/USD, prices pushed right back to 1.1200 before stalling for a couple weeks through the end of Q3. In GBP/USD, the stretch was more than 400 pips as the Fibonacci level came into play.

But more relevant for strategy purposes is what’s happened after. EUR/USD has pushed well below that previously-defended support and, at this point, that level isn’t even in the conversation for resistance potential in the pair’s sell-off.

GBP/USD, meanwhile, has seen an element of defense after that 1.3000 price was traded through briefly last week. As we wind into the end of the week, a case can even be made for a shorter-term show of bullish price action, with the four-hour chart showing a short-term higher-high as traders pushed back above the 1.3000 handle. If a higher-low can hold, then there would be the makings of bullish trend potential on the four-hour chart.

GBP/USD Four-Hour Price Chart

From the daily chart, bulls still have some work to do to re-take control, as the case can still be made that we’ve seen resistance play from a prior spot of support, around the 1.3070 level. Sitting overhead are short-term resistance levels at 1.3114 and 1.3134, after which a longer-term level comes into the picture at 1.3161.

GBP/USD Daily Price Chart

GBP/JPY

On a fundamental front, I’m personally skeptical about the return of the carry trade in USD/JPY which, in-turn, would imply skepticism around the return of carry trades in GBP/JPY, as well.

But as I shared in the weekend video and article around the USD pertinent to USD/JPY, all that we’ve seen thus far in the major pair is failure at 150.00. I don’t yet want to assume that the trend is done because we’ve still seen buyers supporting higher-lows, and the zone of resistance in USD/JPY spans all the way up to 151.95.

Now, perhaps that changes next week. But, if it doesn’t, there’s still technical breakout potential in GBP/JPY as a long-term Fibonacci level has been continually tested over the past three weeks and there’s also been a build of higher-lows to go along with that.

That diminishing impact of resistance can lead to eventual breakouts, especially if we haven’t yet seen a top formed in the major pair of USD/JPY.

GBP/JPY Daily Price Chart

From the longer-term weekly chart, we can get better view of that stalling that’s shown at the Fibonacci level, and we can also glean some invalidation levels to investigate if we do see bulls end up failing.

I’m tracking support in a zone from 193.61-194.11, and below that, a zone from 190-190.81. If that second zone comes into play, I’m probably going to begin the assumption that bulls have failed and USD/JPY is showing a greater turn.

On the resistance side of the coin, if we do see bullish breakout, the next zone of interest runs from the 197.42 Fibonacci level up to the 198.08 prior price swing.

GBP/JPY Weekly Price Chart

--- written by James Stanley, Senior Strategist