James Kim@Saxo
James Kim, sales trader at Saxo Capital Markets Australia, examines trading strategies during week 43 in a technical analysis of charts for forex, indices and commodities.
Article / 01 June 2016 at 14:40 GMT

FX Board: JPY, GBP diverge at maximum speed

Head of FX Strategy / Saxo Bank


The clock's ticking down towards the Brexit referendum after a bad day for sterling. Photo: iStock

By John J Hardy

Key developments in FX today:

  • Sterling was pounded for heavy losses as a fresh poll suggests that the market has been too quick to brush off risks of a Brexit at the June 23 referendum, with more downside risk ahead of the vote, though the technical signals may prove unreliable due to ad hoc polling results and the unknown of the event itself. Our trending indicator for GBPUSD is already crossing over to negative today and GBPJPY will likely soon follow.

  • USDJPY dropped further after a bearish reversal overnight of the latest sequence that had taken the pair to the top of the Ichimoku cloud. Most of the heavy lifing was in the JPY rather than notable USD developments. We're now trading back below the cloud in USDJPY and watching for basic retracement levels and possibly more if the US data through the end of the week disappoints. Other JPY crosses are also poised near interesting levels, notably EURJPY and GBPJPY, as mentioned below.

  • The broad USD picture provided no new clues ahead of Friday's key data, as the JPY and GBP stole the focus today, though today did see the greenback recovering smartly against the commodity currencies after some pressure overnight.

GBPJPY poised

GBPJPY may have been a significant contributor to the movement in JPY crosses due to the sudden added focus on Brexit and we find the pair suddenly challenging the Ichimoku cloud bottom after formerly focusing on higher resistance levels.

Technical signals are treacherous when ad hoc news can derail or shift sentiment so quickly and the June 23 vote is the ultimate test.

The ultimate test for GBPJPY comes on June 23
 Source: SaxoTraderGO

EURJPY reversal

EURJPY has reversed course on the JPY rally and we're challenging interesting levels again soon to the downside if the selling continues. Note the evening star-like candlestick formation if we close near or below current levels.

EURJPY reverses course
 Source: SaxoTraderGO

AUDUSD squeezes higher

AUDUSD squeezed significantly higher overnight after the pair had recently lost downside momentum, taking out stops above 0.7250. But the subsequent action today has seen the pair back below that level and we could see a bearish shooting-star formation on the day if we close near current levels, though we'll have to see the US data later in the week.

Even if the pair doesn't stay down here due to weak US data releases, the scope of any follow up rally might prove modest.

Any AUDUSD rally is likely to be modest
 Source: SaxoTraderGO

— Edited by Martin O'Rourke

John J Hardy is head of forex strategy at Saxo Bank
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FX Board for Wednesday, June 1, 2016


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