British Pound Breaks Out, Japanese Yen Halts Advance

The British Pound remains the best performing currency on Wednesday after extended the rally from earlier this week to reach a fresh weekly high of 1.6294, and GBP/USD may continue to retrace the decline from December as the Bank of England looks to conclude its easing cycle. The pound-dollar is nearly 120pips higher from the open after moving 105% of its ATR, but the lack of momentum to cross back above the 100-Day SMA at 1.6309 may keep the pair within a broad range over the remainder of the month as investors weigh the outlook for future policy. Nevertheless, as the 30-minute RSI pulls back from overbought territory, we may see the pair cover the gap from the 120-SMA at 1.6150 going into the Asian trade, but the ongoing weakness in the U.S. dollar may keep the pair bid throughout the week as the greenback remains the most popular funding-currency next to the Japanese Yen.

The Japanese Yen halted its three-day advance, with the exchange rising to a high of 91.53, and remains the only currency that’s low against the greenback on Wednesday. The USD/JPY remains 40+pips higher on the day after moving only 69% of its average true range, and we may see the pair continue to trend higher throughout the U.S. trade and cover the gap from the 120-SMA at 91.70. However, the lack of momentum to cross back above the 20-Day SMA (91.67) paired with the bearish divergence in the RSI favors a bearish outlook for the pair, the dollar-yen may continue to push lower over the remainder of the week as the near-term rally fails to hold above the 200-Day SMA at 93.36. As a result, we may see the exchange rate test the 100-Day SMA at 90.51 for short-term support as the U.S. dollar weakens against most of its major counterparts.

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To discuss this report contact David Song, Currency Analyst: dsong@fxcm.com