GBP/USD Bullish Triggers Emerge Even as Carney Offers No Insight

2017-12-20 16:00:00 David Song

Talking Points:

- GBP/USD Bullish Signals Emerge Even as Carney Offers No Insight for Monetary Policy.

- USD/JPY Extends Bullish Sequence, Eyes Monthly-High Ahead of BoJ.

GBP/USD largely preserves the range from earlier this week as Bank of England (BoE) Governor Mark Carney refrains from speaking on monetary policy, with the pair at risk of facing choppy prices over the remainder of the year as market attention turns to phase two of the Brexit deal.

While the BoE will allow European banks to operate in the U.K. after Brexit, Governor Carney offered no insight for monetary policy as the central bank carries a wait-and-see approach into 2018. With limited data prints on tap for the remainder of the week, GBP/USD may continue to consolidate within a narrow range, but the broader outlook remains supportive as the BoE warns ‘further modest increases in Bank Rate would be warranted over the next few years, in order to return inflation sustainably to the target.’

In turn, GBP/USD may continue to track the upward trend from earlier this year, but the pair stands at risk for a larger pullback as it remains capped by the 1.3560 (50% expansion) region. Nevertheless, recent price action instills a constructive outlook for the pound-dollar exchange rate as both price and the Relative Strength Index (RSI) appear to be breaking out of the bearish formations from earlier this month. Want more insight? Sign up and join DailyFX Currency Analyst David Song LIVE for an opportunity to cover key market themes along with potential trade setups.

GBP/USD Daily Chart

GBP/USD may continue to gain ground as the 1.3280 (23.6% expansion) to 1.3300 (100% expansion) region offering near-term support, with a move back above 1.3440 (38.2% expansion) to 1.3460 (50% retracement) raising the risk for a run at the December-high (1.3550) as a bull-flag appears to be panning out.
Need a close above 1.3560 (50% expansion) to see a run at the 2017-high (1.3657), with a break/close above the 1.3690 (61.8% expansion) to 1.3700 (38.2% expansion) hurdle opening up the Fibonacci overlap around 1.3830 (61.8% retracement) to 1.3870 (78.6% expansion).

USD/JPY appears to be on track to test the December-high (113.75) as the pair extends the bullish sequence from the previous week, with the Japanese Yen at risk of exhibiting a more bearish behavior over the remainder of the year should the Bank of Japan (BoJ) keep the door open to further support the real economy.

Even though the BoJ continues to pursue its Quantitative/Qualitative easing (QQE) with Yield-Curve Control, Governor Haruhiko Kuroda and Co. may adopt a more dovish tone at its last interest rate decision for 2017 as the central bank struggles to achieve the 2% target for inflation.

A greater willingness to further utilize the central bank balance sheet may fuel the recent series of higher highs & lows in USD/JPY, but keep in mind, the broader outlook for the dollar-yen exchange rate remains confined by the range-bound price action from earlier this year, with the outlook clouded with mixed signals especially as the Relative Strength Index (RSI) preserves the bearish formation carried over from the summer months. Want to learn more about popular trading indicators and tools such as the RSI? Download and review the FREE DailyFX Advanced trading guides !

USD/JPY Daily Chart

Near-term outlook for USD/JPY remains supportive as the pair fills the gap from September, with the recent series of higher highs & lows raising the risk for a test of the monthly-high (113.75).
Nevertheless, USD/JPY may follow as similar path from earlier this year as it comes up against the 113.80 (23.6% expansion) to 114.30 (23.6% retracement) region, with another failed attempt to break/close above the Fibonacci overlap raising the risk for range-bound prices.
Need a close below the 112.30 (61.8% retracement) to 112.80 (38.2% expansion) region to open up the downside targets, with the next region of interest coming in around 111.10 (61.8% expansion) to 111.30 (50% retracement).