GBP/USD protecting 1.30

Highlights

• The Surge May Be Over Now

• GBP/USD protecting 1.30

• USD/JPY fearing 100.00

Please note: All data, figures & graphs below are valid as of September 23rd. All trading carries risk. Only risk capital you're prepared to lose.

 

Overview

Thanks to Janet Yellen and Haruhiko Kuroda for a very fun week. Both have delivered the markets exactly what they wanted and it wasn't action. Both the BoJ and the Fed have given the markets something a lot more important... hope.

The promise that rates will remain lower for longer and monetary policy will remain loose, allowing investors to continue borrowing money cheaply for many years to come.

Mario Draghi and Mark Carney also managed to instil confidence in their respective markets. We're in a new world as far as monetary policy. Never before have we seen such aggressive measures of stimulus and so far it seems to be working.

Sure there are challenges but at least for the time being the house of cards has not come crashing down. This is why the stock markets are able to continue rising even though the economy is stagnant. As long as the 4 people mentioned above and their peers are able to instil confidence, we'll have nothing to fear but fear itself.

 

The Stock Markets

As we mentioned the stocks have risen. In Europe yesterday the gains surpassed 3% so far this week in many markets including the Ger30,Fra40, and Eustx50.

In the USA and in Asia the gains were a bit more modest with most indexes rising about 1.5% since Monday.

However, the Asian markets are not doing quite as well today and the European markets have just opened slightly negative. So we are definitely seeing a bit of a retracement happening going into the weekend.

 

Currencies

There are 2 currency pairs at the moment that are quite close to their significant levels.

The GBPUSD, has been hovering around 1.3000, which represents the lower end of the post-brexit range...

If it does fall below 1.3, there is still one more support level at 1.2850 before the abyss.

The USDJPY is also quite close to her major psychological support level of 100.00. As we can see in the following chart, this pair has been locked in a steep downward channel since the beginning of the year, but has refused to step too far below this level for very long...

Goldman Sachs has set their target at 108 Yens to the Dollar by the end of the year, but first we'd need to see this channel break. If it does fall significantly below 100 there isn't much in the way of support until 90.

Now, it is fairly unlikely that both of these levels will break simultaneously. A break down for the GBPUSD would mean a strengthening USDOLLAR, where a downward breakout in the USDJPY would mean a weakening buck. So having one position on each would provide a Dollar hedge in your account, reducing your risk and providing more stability than trading on just one or the other.