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

EUR/USD and USD/JPY both reach crucial areas of resistance this morning, as we try to decipher whether US dollar strength is set to take hold once more.

Euro
Source: Bloomberg

EUR/USD rallies into key resistance area

EUR/USD has moved into more of a consolidation phase over the past 24 hours, following a sharp deterioration on Wednesday. The rally we have seen since yesterday’s low of $1.1180 has brought price back to the key resistance area around $1.1230 where the reaction to this level is likely to determine the state of play for the day.

As such, a closed hourly candle above $1.1230 would look for a deeper retracement of the Wednesday sell-off, with the 61.8% ($1.1250) and 76.4% ($1.1266) Fibonacci retracements representing particularly interesting resistance levels.

However, until that happens, it makes sense to remain bearish for as long as price remains below $1.1230. Key support levels of note are $1.1193 and $1.1180.

GBP/USD pullback unlikely to last

GBP/USD has been largely consolidating over the past 48 hours, with the 38.2% retracement providing support. This has been tested once more this morning, with price temporarily moving below this level. We see any move lower as a retracement of the Wednesday rally and thus while a closed hourly candle below $1.4564 would provide a more bearish short-term view, this would provide an opportunity to get long at a better price.

Thus in that scenario, look out for the 61.8% ($1.4503) and 76.4% ($1.4465) pullbacks as support. However, given the bullish outlook we have as a whole, as long as price remains above $1.4564, we could see a bounce, with $1.4664 the next key resistance level.

USD/JPY back into notable resistance zone

USD/JPY is rallying once more today, following on from a rare day of weakness yesterday. However, if we look on the daily timeframe, it is clear that the pair remains within a wider downtrend and with both Fibonacci and trendline resistance up ahead, questions could be asked once more today.

The stochastic is heavily overbought, which provided us with the past two tops when at the current levels (dashed vertical line). This may not mean that we will immediately sell-off, but certainly be aware of the big resistance zone up ahead, where an inability to break through yesterday’s high and 76.4% retracement level of ¥110.39 would be a big warning sign. 

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