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

USD/JPY sees a sharp rally overnight, yet there are signs that the recent downtrend could be coming back into play. Elsewhere, EUR/USD and GBP/USD are expected to see further downside come into play, yet we are awaiting key levels to be reached or broken to bring the next leg lower.

Pound coins and dollar notes
Source: Bloomberg

EUR/USD catches a bid

EUR/USD has failed to break back to $1.0952 overnight, with the pair instead rallying higher this morning. Crucially, this seems like a part of the process, with the failure to regain $1.1041 and a subsequent move back below $1.0983 pointing towards a highly likely move lower.

As such, this rally provides those who didn’t get the 76.4% short entry with a second bite of the cherry, with another move lower likely before long. With that in mind, a bearish view remains in play, with a rally into $1.1020 of particular interest.

Given yesterday’s new lower high, there is also a potential to put together a five or six to one risk/reward trade at $1.1017 based on the notion that we will see a move back down to $1.0952 and not back above $1.1029. In either case, as long as price remains below $1.1041 a bearish view remains, with a move back down below $1.0952 likely.

GBP/USD consolidates above key support

IN_GBPUSD failed to break through the $1.3064 support level yesterday, instead choosing to rally into the $1.3165 resistance level. With the pair unable to break through that resistance level, we are stuck for now as we await the next creation of a higher high or lower low to set the pair on its next move.

Given the wider sell-off, a break below $1.3064 seems likely, yet until it happens this range is expected to continue. Given that the price is currently weakening from $1.3165, a short-term move back down to $1.3079 is expected.

However, the interest comes when we see an hourly close above $1.3165 or below $1.3064.

USD/JPY rally comes undone

IN_USDJPY saw a sharp appreciation overnight, following rumours of a big fiscal stimulus package in the offing. However, crucially we saw a big shooting star candle that failed to break above ¥106.72, thus continuing to the recent trend of lower highs and lower lows.

We are currently seeing a move lower, which continues the short-term bearish view. This outlook holds unless we see price break through ¥106.72. Of course, this pair will be affected more than most this week, with the FOMC statement today and Bank of Japan due to announce on Friday.

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