FX levels to watch – EUR/USD, GBP/USD, USD/JPY

GBP managed significant gains yesterday, flying against the overall weakness story in EUR and JPY. With another Brexit poll up ahead, will we see the same again today?

GBP/USD forex pair
Source: Bloomberg

EUR/USD rally unlikely to last
Yesterday saw EUR/USD break lower in a very convincing manner, as we continue the downtrend that is in place throughout May. Previous rallies have been fleeting at best, with the past two coming into the shallow 38.2% pullback before selling off once more.

So far, we have only found the 28.6% level ($1.1159), yet between that and the 38.2% ($1.1175) we should see the pair turn lower once more. The key is a closed hourly candle below $1.1133, which would likely spark another move lower for the pair.

This bearish view would only be negated with a move back above $1.1243.

GBP/USD flag points to further gains
GBP/USD is returning to the bullish medium-term picture that dominates our perspective, with yesterday’s rally replicating the sharp appreciation this time last week. The pullback seen earlier this morning has formed a bullish flag pattern, which is expected to result in another break higher for the pair.

A more reliable breakout signal would come with a closed hourly candle above $1.4642, while others may try to go long at the lows of the pattern. Either way, a bullish view is in play with near-term resistance levels at $1.4642, $1.4664 and ultimately $1.4770.

Over the short-term, an hourly close below $1.4580 would bring a good chance of a deeper retracement lower. 

USD/JPY bearish view remains
USD/JPY saw a sharp rally yesterday, in line with the risk-on sentiment that has permeated through the markets. However, it is worthwhile noting the longer-term picture is one of a clear downtrend in this pair, with the Friday-Monday trendline/Fib selloff reflecting this.

Price is back near that same trendline and yet another 76.4% retracement (¥110.24). Given the existence of both these major resistance levels, coupled with the break below ¥109.70 this week, a bearish outlook remains in place. Certainly given the current price action of major indices, this is flying against the wind, but another sell-off still remains the best option from a risk-to-reward scenario.

This view holds unless we see a break back through ¥110.59, with key support levels to note at ¥109.70 and ¥109.11.

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