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GBP/USD Marches Toward Monthly-High (1.3321) Ahead of BoE Testimony

GBP/USD Marches Toward Monthly-High (1.3321) Ahead of BoE Testimony

2017-11-20 16:08:00
David Song, Strategist
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Talking Points:

- GBP/USD Marches Toward Monthly-High (1.3321) Ahead of BoE Testimony.

- USD/JPY Extends Bearish Series; Yellen on Tap Ahead of FOMC Minutes.

DailyFX TableGBP/USD

GBP/USD remains bid coming into the last full-week of November, and the pair appears to be on track to test the monthly-high (1.3321) as it extends the bullish sequence from the previous week.

It stands to be an eventful week for the British Pound as Chancellor of the Exchequer Philip Hammond is scheduled to present the updated U.K. budget later this week, but the Parliament testimony with Bank of England (BoE) officials Jon Cunliffe, Ian McCafferty, Michael Saunders and Gertjan Vlieghe may heavily impact the near-term outlook for GBP/USD as the central bank appears to be on course to further normalize monetary policy in 2018. Despite the 7 to 2 split to implement the dovish rate-hike in November, the central bank may follow its current pace of one rate-hike per year as ‘a majority of MPC members had judged that, if the economy continued to follow a path broadly consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure, some withdrawal of monetary stimulus was likely to be appropriate over the coming months in order to return inflation sustainably to target.

As a result, Governor Mark Carney and Co. may continue to prepare U.K. households and businesses for a gradually rise in the benchmark interest rate, with GBP/USD at risk of staging a more meaningful advance if it snaps the range-bound conditions from earlier this month.

GBP/USD Daily Chart

GBP/USD Daily Chart
  • Keeping a close eye on the near-term hurdle around 1.3300 (100% expansion) to 1.3320 (38.2% retracement) as it lines up with the November-high (1.3321), but a break of the monthly opening range will bring the topside targets back on the radar as price and the Relative Strength Index (RSI) exhibit a more bullish behavior.
  • Next region of interest comes in around 1.3370 (78.6% expansion), which sits just below the October-high (1.3402), followed by the Fibonacci overlap around 1.3450 (23.6% retracement) to 1.3460 (50% retracement).
USD/JPY

Near-term outlook for USD/JPY remains tilted to the downside as both price and the Relative Strength Index (RSI) preserve the bearish formations from earlier this month.

Keep in mind, the U.S. economic docket remains fairly light with a majority holiday approaching, and fresh remarks coming out of from the Federal Reserve may ultimately generate a limited market reaction as the central bank is expected to endorse a wait-and-see approach in the first-half of 2018.

Fed Fund Futures

Even though Chair Janet Yellen is scheduled to speak ahead of the Federal Open Market Committee (FOMC) Minutes, the comments may do little to influence the monetary policy outlook as President Donald Trump nominates Governor Jerome Powell to lead the central bank. With the U.S. Senate Banking Committee scheduled to hold the confirmation hearing on November 28, market participants are likely to put increased emphasis on the upcoming rotation within the FOMC as central bank officials start to trim the longer-run forecast for the benchmark interest rate.

In turn, the Fed may ultimately implement a dovish rate-hike in December, and USD/JPY may continue give back the advance from the September-low (107.32) as the central bank runs the risk of completing its hiking-cycle ahead of schedule.

USD/JPY Daily Chart

USD/JPY Daily Chart
  • Near-term outlook for USD/JPY remains tilted to the downside after snapping the range from earlier this month, with a break of the 200-Day SMA (111.75) raising the risk for a move back towards 111.10 (61.8% expansion) to 111.30 (50% retracement).
  • USD/JPY appears to be testing the former-support zone around 112.30 (61.8% retracement) to 112.80 (38.2% expansion) for resistance as it aligns with the trendline from the monthly-high (114.74).
  • Next downside region of interest comes in around 109.40 (50% retracement) to 110.00 (78.6% expansion) followed by the Fibonacci overlap around 108.30 (61.8% retracement) to 108.40 (100% expansion).

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--- Written by David Song, Currency Analyst

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