The GBP/USD fell to long term lows yesterday, but the trading occurred as a bank holiday was being celebrated in Britain.

The GBP/USD is trading near the 1.17180 mark as of this writing.  For traders who turned their head’s away yesterday and didn’t pay attention, the GBP/USD currency pair fell to a low of nearly 1.16480, thus today’s higher trading value may be considered a potential bright spot. But before traders are tempted to believe the worst is over for the British Pound, they might want to consider the following.

The notion that Great Britain was celebrating its ‘end of summer’ holiday yesterday and banks were officially closed meant that British institutions weren’t actively trading.  The notion that an ‘unprotected’ British Pound was left to the sentiment of international trading houses and sold off with a rather large amount of gusto is troubling. It could be a sign that behavioral sentiment globally views the GBP/USD as still being too highly valued.

GBP/USD Bullish Traders may believe the Forex pair is oversold but should be careful

The last time the GBP/USD traded at yesterday’s lows was during the height of coronavirus fear when the Forex pair went to within sight of the 1.14225 ratio momentarily in March of 2020. Yes, this time is different than the coronavirus experience, but the question if it is a better economic circumstance should be asked. Economic outlooks and central bank interest rate policies remain troubling for Great Britain and its global counterparts. The fact the U.S Fed seems intent on maintaining a hawkish interest rate policy is playing havoc with the GBP/USD too.

• The 1.17000 level should be watched closely, if it falters again short term, this could be a bearish signal.
• Later this week jobs data from the U.S is certain to create more volatility for the GBP/USD, and financial institutions may be positioning now for the statistics that will come on Friday.

Current Support Levels should be monitored for Additional Signals from the GBP/USD

If the 1.17000 were to prove vulnerable again and trading is sustained below this ratio, it would be a troubling signal for the GBP/USD. Yesterday’s move towards extreme lows may not be repeated short term, but it is a reminder that sentiment remains fragile. If current support begins to falter, traders could not be blamed for wagering on marks below the 1.17000 that target 1.16900 for quick hitting results if they are willing to bet on downside price action. Conditions will likely remain choppy in the GBP/USD and its bearish trajectory shows few signs of relenting in the near term.

GBP/USD Short Term Outlook:

Current Resistance: 1.17239

Current Support: 1.17010

High Target: 1.17580

Low Target: 1.16510

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New long-term highs were made in the USD/JPY currency pair yesterday, as financial institutions absorbed another round of information from the U.S Federal Reserve.

Yesterday’s trading in the USD/JPY saw the Forex pair reach ultra long-term highs near the 137.800 vicinity. Intriguingly the upwards trajectory displayed yesterday was not extremely violent, unless ‘a trader’ happened to be on the wrong side of the price action. The USD/JPY continues to demonstrate a strong bullish trend which until proven otherwise could prove unfortunate to be wagering against. The trend upwards has been incremental.

Long Term Bullish Trend of USD/JPY is Likely Not About to Erode Quickly

Certainly, at some point in the future the USD/JPY will likely start witnessing an erosion of value.  However, the current economic environment is causing a dynamic swirl of confrontation regarding central bank policies between Japan and the U.S, this while inflation is being confronted internationally. The Bank of Japan continues to remain dovish and the U.S Federal Reserve is voicing hawkish rhetoric.

• U.S Federal Reserve Meeting Minutes point to another rate hike the last week of July.
• Bank of Japan continues to voice a dovish interest rate policy and is likely to remain stubborn.

Technical traders do have the ability to also monitor the USD/JPY via extremely long-term charts, and see historically the USD/JPY has traded at higher vantage points. This is not the first time the currency pair has seen such levels; today’s prices are still below the highs of 1998. Technical traders may want to note the USD/JPY touched a mark of nearly 147.750 in August of 1998. That is not to say the USD/JPY will find this value again, it is merely to note the potential exists for greater heights and should not surprise speculators.

Additional Buying Could be Ignited if the 138.000 level is Toppled

Psychological price levels will have a strong influence within the current pace of price velocity of the USD/JPY currency pair.  If the USD/JPY begins to show an ability to move above the 137.500 level and sustain this value, speculators will no doubt start to eye yesterday’s highs and may believe the 138.000 mark is going to be challenged sooner rather than later. If the 138.000 level is flirted with and surpassed this could open the door for an additional wave of buying.

Speculators who prefer to be conservative cannot be blamed, but perhaps they should not be contrarian.  Selling the USD/JPY and looking for reversals lower could prove to be very dangerous still. Yes, the USD/JPY could turn lower rapidly, but it is unlikely that a massive selloff will erupt in the coming days. It is more likely that moves downwards will spark a rebound and potentially higher prices. The lack of a unified central bank interest rate policy among the major nations – U.S and Japan included, will likely remain a focal point for a stronger USD near term.

USD/JPY Short-Term Outlook

Current Resistance: 137.530

Current Support: 136.980

High Target: 138.210

Low Target: 136.640

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Remember, rallies during bear markets tend to be very vicious, and that could have been what we have just seen.

S&P 500 futures fell on Tuesday as the market has seen so much in the way of noise overall. This is a market that I think will continue to see noisy behavior, as there are a lot of uncertainties around the world. The S&P 500 is dealing with the idea of higher interest rates coming out of the United States, and it will perhaps weigh upon the index. The market has fallen from the top of the potential flag pattern, so I think it is only a matter of time before the buyers have to make a bigger decision.

If we were to break above the downtrend line of the flag, then it is obviously a bullish sign. The 4585 level is where we had previously seen a bit of a double top. This double top being broken to the upside then shows a continuation of the bullish pressure that could send this market higher. This would obviously open up the possibility of bigger games, but right now Wall Street has to decide whether or not interest rate hikes are going to continue to be something to fear.

Underneath, we have the 50-day EMA coming into the picture at 4456 and rising, so pay close attention to that area and see whether it would continue to offer support. If we were to break down below that level, then it is likely that the 200-day EMA near the 4400 level could be the next target to the downside. Breaking below there would then signify a downtrend yet again and could send markets scrambling. The market continues to see a lot of volatility, and probably the only thing that you will be able to count on is the choppiness.

As central banks around the world will continue to think about tightening, this will have a drastic effect on profits, and it is very likely that the S&P 500 still will think of this as “swimming upstream.” Ultimately, we need some type of impulsive and large candlestick to determine where we are going next. It certainly looks as if we are trying to build a bullish flag, but we need things to turn around rather quickly to get things moving in a positive manner. Remember, rallies during bear markets tend to be very vicious, and that could have been what we have just seen.

It is obvious to me that traders right now do not believe the Federal Reserve.

The British pound initially fell on Friday to reach down towards the 1.31 level before turning around and reaching towards the 1.32 handle. This is an area that I think should continue to be significant resistance, so if we break above there it would be a very strong sign. Ultimately, this is a market that I think could open up for a move towards the 1.34 handle, or perhaps even the 50-day EMA.

Looking at the shape of the candlestick, it is suggesting that we are going to try to break out to the upside, but that does not necessarily mean anything until it actually happens. After all, it is interesting that we were willing to hang on to the pound going into the weekend. That might be a good sign, and that could open up the possibility of a much bigger move.

If we break down below the bottom of the candlestick for the Friday session, that is likely that we could go looking towards the 1.30 handle underneath, as it is an area that I think would attract a lot of attention. What is worth noting is that there are several markets out there right now that suggest perhaps the Federal Reserve will not be able to tighten, and that might be part of what we are seeing across the board. Whether or not they can is a completely different question, but it is obvious to me that traders right now do not believe the Federal Reserve.

Whether or not they choose to fight inflation will be the question, because some governors are talking about 50 basis point interest rate hikes, while others are happy with 25 bps. Nonetheless, it will be interesting to see how this plays out because the markets are showing so much in the way of hesitation to believe the Fed. If they do convince the market that they are going to get tight again, it will be interesting to see how it plays out. However, it is interesting that now that we have an idea of what the Fed is going to do, the market seems to be somewhat okay with it. Ultimately, it will be interesting to see what happens next, but the most obvious part of the analysis is that the 1.32 level matters.