GBPJPY, H4
Political developments and Brexit will remain sharply in focus. President Trump’s apparent walking back on Friday of his criticisms of Prime Minister May — after championing Boris Johnson’s credentials as a potential PM in an interview with a Murdoch-owned tabloid newspaper that is wanting to topple PM May — lifted both the Pound and UK yields.
But the UK’s future remains clouded in uncertainty about:
- whether the Cabinet-backed Brexit plan will be well received by the EU
- whether, given the close regulatory and legal ties the UK government seeks with the EU, it will restrict the UK’s ability to form new free trading deals around the globe;
- and whether the Brexiteer camp in the ruling Tory party will attempt to scupper the plan, or even attempt a coup (though they don’t appear to have either sufficient numbers nor support).
The fate of May’s fragile government will depend on how these issues, and others, unfold. A general election is a possibility, and all this is coming with time running out with the EU looking to have an agreement wrapped up by October ahead of actual Brexit in May next year.
Talks are set to continue on Monday and chief negotiator Barnier is due to meet EU ministers on July 20 to debate a response to the plan. EU diplomats already hinted that May’s vision likely crosses some of the EU’s red lines and Barnier tweeted that the EU’s own offer already contains and ambitious Free Trade Agreement as well as effective cooperation on wide range of issues, including a strong security partnership. That doesn’t sound as though he was buying into May’s white paper wholeheartedly. At the same time, May’s own position at home remains somewhat shaky and even if there is a deal now there is no guarantee that hard core Brexiteers won’t still try to oust the Prime Minister. So a hard Brexit remains a distinct possibility as the time for a deal is running out.
GBPJPY:
Sterling has traded generally stronger so far today, gaining ground to the Dollar and Yen. Cable holds above 1.3200 from an 11-day low at 1.3102 seen on Friday, while GBPJPY broke to the upside the 149.00 barrier earlier and it is currently fluctuating around it.
GBPJPY rebounded from 147.61 on Friday and formed a Morning star formation in the 4-hour chart, which is viewed as a bullish reversal pattern. The immediate Resistance came at the confluence of June’s peak and the FE 100.00 (after the retracement Swing Low occurred in June 7) at 148.50. The next consecutive Resistance was at the latest up fractal in the 4-hour chart, at the round 149.00 level. Both Resistance levels were broken this morning, suggesting that the bulls are boosting the asset for further upside movement despite Brexit’s concerns.
Momentum indicators in the 4-hour chart present similar positive picture as well. RSI is at 67 and continues to look in the upside direction, while MACD turned positive above its signal line. Therefore next level to the upside to be watched are the 200-DAY MA at the 149.50 and the FE127.2, at 149.80. A breakout of FE 127.2 could triggered the attention towards 151.50 area. Support remains at the 20-period SMA, which is supporting strongly the pair since June 29.
Given the Brexit uncertainty, overall we retain a wary view of the Pound. Hence in longterm, a closure this week below 147.50-148.00 (20-Week SMA) should switch the outlook to a negative bias one.
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Andria Pichidi
Market Analyst
HotForex
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