With just two exceptions, we have to go back to 1975 to find a quieter month for USD/JPY. US yields have been quiet and rangebound, which have historically been a driver of this pair and there’s been low volatility across the FX complex relative to the fireworks in commodities and the cryto space. But a rangebound market in a currency pair can mean a breakout is imminent.
USD/JPY: Symmetrical triangle on the weekly chart
The USD/JPY weekly chart shows a symmetrical triangle is playing out with prices trading around the 23.6% Fibonacci level of this year’s high/low at 108.98 and the 200-week SMA at present. This pattern is a continuation pattern representing a period of consolidation before the price is forced to break which ordinarily is in the direction of the underlying trend.
In this case, this should mean a breakout to the upside indicating a new bullish trend so buyers can target the May high at 109.78 ahead of this year’s high at 110.96. Stops are best placed below this week’s low and the 200-day SMA at 108.55.
GBP/USD: Consolidating near the highs
There’s been a fair bit of domestic political noise in the UK which certainly hasn’t helped GBP recently, along with concerns about the Covid variant from India which threatened more local lockdowns. Interestingly just this morning, we’ve had an MPC member who has commented about the possibility of an early rate hike if the exit from the furlough program at the end of September is smooth. This is noteworthy as Vlieghe, although an outgoing member, is typically more dovish so this may give us a sense of where the more moderate MPC member’s outlook lies.
Cable has traded sideways for the last week or so with the range confined between 1.41 and 1.42. Sterling has jumped higher on the Vlieghe comments and again, consolidation at the highs normally can mean a break out in line with the dominant trend. The RSI dipped to 50 recently but has now picked up so bulls will aim for the February high at 1.4241 with an eye on the April 2018 high at 1.4376. Support lies at 1.4100/15.