Will GBP/USD Break 1.70?

Will GBP/USD Break 1.70?

Chart Of The Day

Fundamentals

FX traders are sitting at the edge of their seats waiting to see if GBP/USD will make another run for 1.70. Tomorrow is a big day for the British pound with the labor market and Bank of England Quarterly Inflation reports scheduled for release. The BoE’s Quarterly report is widely expected to have a big impact on sterling and if the central bank is sufficiently hawkish it could drive GBP/USD to 1.70. In fact the last two times that it was released, it triggered a 175 to 200-pip rally in GBP/USD on the day of the release followed by a move that extended as much 400 pips. This month speculators are not only looking for continued optimism by the central bank but they also expect the BoE to signal plans to tighten monetary policy. If the central bank upgrades their growth forecasts, lowers their employment forecasts and hints that tightening is possible, we expect GBP/USD to clear 1.70 easily. However if they stress that monetary policy remains easy and tightening is a long ways away, GBP/USD could slip below 1.68 quickly and aggressively, cementing 1.70 as the top for the currency. While there is no doubt that economic activity has improved with manufacturing and service sector activity accelerating, retail sales growth has been weak and more importantly, the annualized pace of consumer price growth slowed in the month of March. The strong currency also puts further pressure on inflation and as long as the risk of a jump in inflation expectations is low, the BoE may prefer to keep monetary policy steady for the time being.

Technicals

Although GBP/USD retraced off its 1.70 high, as long as it holds above 1.6760, the uptrend remains intact. If it breaks below 1.6760, there is no major support until 1.6600. On the upside, if GBP/USD clears 1.70, there is minor resistance at the 2009 high of 1.7043 and nothing beyond that until 1.75.

Will GBP/JPY Sustain its Gains Above 170?

Will GBP/JPY Sustain its Gains Above 170?

Chart Of The Day

Fundamentals

What a day it has been for GBP/JPY! The currency pair dropped to a low of 169.25 on the back of weaker U.S. retail sales but managed to recover and recapture 170 by the end of the North American trading session. This intraday rally was driven by a turnaround in U.S. stocks and the market’s realization that soft spending will keep the Fed tapering at a very measured pace. Sterling remains strong, adding to the gains it first enjoyed after yesterday’s BoE Inflation Report. With no U.K. data on the calendar tomorrow, we expect a sustained rally in sterling because the BoE’s shift in strategy and upgrade to their GDP forecast represents a significant shift in their monetary policy outlook. The central bank now sees the economy growing 0.5% faster than they initially anticipated this year, which means they could also accelerate their plans for tightening. Their rosier outlook for the economy has driven U.K. yields sharply higher and we believe they will continue to rise, providing support to the GBP. As for USD/JPY, the currency pair’s resilience in the face of weaker retail sales is nothing short of impressive. Its move back above 102 puts 103 in sight.

Technicals

170 is a very significant resistance level in GBP/JPY. It capped gains back in December and was a breakdown point in January. The currency pair first attempted to break 170 on Wednesday but overnight it gave up its gains to trade back down to 169.25. As of the North American close, it is trying once again to muster a meaningful move above 170 and we hope the second time is the charm. There is no major resistance above 170 until the 171.20-40 range and above 172, the currency pair could hit fresh multiyear highs. If GBP/JPY drops below 169, we could see a stronger reversal down to 168.