Forex Review: GBP/USD, USD/JPY

It may be said quite fairly that there was really only one big story on the foreign exchanges as the week began, and it was all about Sterling. Why some may have question why the UK currency should fall so much purely on the arrival of Boris Johnson to the Brexit camp, the consensus view was that even if may not be enough to win the vote for the “leave” campaign, it puts the odds more in favour of a Brexit, with the chances of such an event said to be up from 20%-30% to as high as 30%-40%. This may still mean that the prospects of Britain leaving the EU are slim, but it does change such a prospect from being practically impossible to impossible to rule out. For those thinking of either investing in the UK, or deciding to take profits on holdings here, this could be a key change of emphasis.

Sterling/Dollar: Below $1.40 Risks $1.35

From a technical perspective it may be said that the prospect of Cable veering back down towards 2009/2010 support in the $1.40 zone was always going to be an eventuality to be factored in once, the key $1.50 handle was lost comprehensively in December. Since then we have experienced a sinking feeling, especially after the Bank of England put back the prospect of a rate hike out to 2019. This meant that even before the latest Brexit fears the UK currency was verging on being that most dangerous of markets, a “one way bet.” If one adds in the way that even now the prospect of an additional interest rate hike or two cannot be ruled out by the Federal Reserve as soon as the summer, then the UK currency really is on the back foot. Indeed, the main silver lining, and perhaps the only plus is that exporters should stand to gain from the cheaper Pound, something which explains why the FTSE 100 jumped today, even as the currency plummeted. What can be said now is that provided there is no end of day close back above a February resistance line / 10 day moving average at $1.4388 one would expect $1.40 to be hit, and then a retest of the main $1.35 2009 floor as soon as 2-4 weeks after this event.

Dollar/Yen: Signs Of A Rebound

While it seems to be the case that it is now the turn of Japanese politicians to drag Bank of Japan Governor Kuroda over the hot coals regarding his monetary policy, at least for now we see that the strength in the Yen looks to have subsided a little. The floor of the 110.98 zone has ended Yen strength for now, with the cross apparently reluctant to trade even below the 112 level. This suggests that while this is no end of day close back below 112, a bounce back to 114 plus or even former 2015 115.57 support could be on the cards over the next 2-4 weeks. This is even if the Yen strength resumes after such a respite.