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• GBP/JPY retraces to near 197.35 after revisiting an almost six-month high around 198.20.
• Lower Oil price has strengthened the demand of the Japanese Yen.
• Upbeat flash UK PMI data for June has supported the Pound Sterling.

The GBP/JPY pair corrects slightly to near 197.35 during European trading hours on Tuesday after revisiting an almost six-month high around 198.20 the previous day. The cross faces slight selling pressure as the Japanese Yen (JPY) gains due to a sharp decline in the Oil price, following the Israel-Iran ceasefire.

The Japanese currency underperformed its peers on Monday after Iran threatened to close the Strait of Hormuz, which led to a sharp increase in the Oil price. Given that the Japanese economy addresses its Oil requirements from imports, higher energy prices diminish the Japanese Yen’s appeal.

Meanwhile, the Pound Sterling trades higher against its major peers, except Asia-Pacific currencies, due to upbeat preliminary United Kingdom (UK) S&P Global Purchasing Managers’ Index (PMI) data for June released on Monday. The data showed that the Composite PMI grew at a faster-than-expected pace due to outperformance in both the manufacturing and the service sector activity.

The Service PMI grew expectedly to 51.3, higher than 50.9 in May. While the Manufacturing PMI declined to near 47.7 but at a slower-than-anticipated pace.

GBP/JPY retraces after a breakout of the Ascending Triangle formation on a daily timeframe, which leads to wider ticks and heavy volume on the upside. The horizontal resistance of the above-mentioned chart pattern is plotted from the May 14 high around 196.41, while the upward-sloping trendline is placed from the May 22 low of 191.90.

Upward-sloping 20-day Exponential Moving Average (EMA) around 195.50 suggests that the near-term trend is bullish.

The 14-day Relative Strength Index (RSI) breaks above 60.00. A fresh bullish momentum would emerge if the RSI holds above that level.

The pair could extend its upside towards the psychological level of 200.00 and the 23 July 2024 high of 203.16 after breaking above Monday’s high of 198.20.

On the flip side, a downside move by the pair below the May 6 low of 190.33 will expose it to the March 11 low of 188.80, followed by the February 7 low of 187.00.

GBP/JPY daily chart

The EURJPY pair continued the rise to reach the resistance of the targeted bullish channel’s resistance at 169.70 level, which explains the direct correctional rebound towards 168.80, despite the attempts of providing mixed sideways trading, and there is a chance to activate the attempts of gathering gains by reaching 168.05.

While the price success in breaching the resistance and providing a positive close above it, will confirm its move to a new positive station, to begin recording new gains by its rally to 170.40 initially reaching the next barrier near 171.60.

The expected trading range for today is between 168.30 and 169.80

Trend forecast: Fluctuated within the bullish track

• The euro has initially gapped lower against the British pound only to turn around and find this footing again.
• We find ourselves near the 0.8550 level and the market has seen some action here previously.
• So, it’ll be interesting to see how this plays out. Any short-term pullback should see plenty of support near the 0.85 level as it is a large, round, psychologically significant figure and an area that’s been important previously.

The 50-day EMA is racing towards it and you can see that it could offer a little bit of support. Now, that being said, the market break into the upside faces challenges in the form of 0.86, but that opens up the door to 0.8650. That being said, this is a market that will have a lot of overhang to do with at the moment.

Slow Mover Most Times

Understand that this pair does tend to move somewhat slowly, and therefore I think a lot of retail traders look past it, but it’s a great swing trading pair to get involved with. I think at this point in time, there is a pretty significant cluster above, and it might be difficult for the euro to continue beyond the 0.8650 level.

This is a market that tends to frustrate those who are looking for quick and big moves, so be aware of that. This is a great measuring stick as to which one of these two currencies you might want to trade against the US dollar and in which direction because in this case the euro is stronger than the pound over the last couple of weeks and you will see that the euro has outperformed the British pound against the greenback. So, you can triangulate with this chart as well, using it as an indicator.

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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

• GBP/USD trades at a weekly high near 1.3600 on Tuesday.
• Improving market mood on the Iran-Israel ceasefire supports the pair’s climb.
• Markets await comments from Fed Chairman Jerome Powell.

After falling to its weakest level in a month early Monday, GBP/USD made a sharp U-turn and ended the day decisively higher. The pair preserves its bullish momentum and trades near 1.3600 in the European session on Tuesday as market focus shifts to Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the House Financial Services Committee.

News of Iran and Israel agreeing to a ceasefire helped the market mood improve late Monday and caused the US Dollar (USD) to come under heavy selling pressure. As risk flows continue to dominate the financial markets on Tuesday, the USD struggles to find demand and allows GBP/USD to continue to stretch higher. At the time of press, US stock index futures were rising between 0.7% and 1.2% on the day, while the USD Index was down about 0.25%.

After delivering the Semiannual Monetary Policy Report, Fed Chairman Powell will respond to questions. Investors will scrutinize Powell’s comments for fresh hints on the timing of the next rate cut.

In an interview with CNBC last Friday, Fed Governor Christopher Waller said that the Fed is in a position to cut the policy rate as early as July, arguing that they should not wait for the job market to crash to ease the policy. On a similarly dovish note, Fed Governor Michelle Bowman said on Monday that she would be in favour of lowering the policy rate at the next meeting, if inflation pressures were to stay contained.

According to the CME FedWatch Tool, markets are currently pricing in about a 20% probability of a rate cut in July. In case Powell leaves the door open for a policy move next month, the USD could weaken further with the immediate reaction, triggering another leg higher in GBP/USD. Conversely, the USD could stage a rebound and cause the pair to correct lower if Powell opposes the view of a July rate cut by repeating that they need more data before deciding on the next policy move.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart edges higher but remains below 70, suggesting that GBP/USD has more room on the upside before turning technically overbought. On the upside, 1.3630 (static level) aligns as the next resistance level before 1.3700 (static level, round level) and 1.3740 (static level).

Looking south, support levels could be spotted at 1.3580 (static level), 1.3530 (100-period Simple Moving Average) and 1.3500 (static level, round level).