October 7, 2021 14:37:57

GBP/USD retraces back to support/resistance zone

Sterling has made a decent comeback after the steep selloff last week. Two sharp days of selling saw the pair break down through the August low at 1.3602 and then the July low at 1.3571. Trendline support from the March lows was pierced. But the pair was oversold on the daily RSI and through the lower Keltner channel.

Buyers have taken the pair back to the zone around 1.36 after four straight days of gains. There is also a Fib level (23.6%) of the March 2020 to June 2021 move at 1.3580. A push above here sees near-term resistance at 1.3647 before 1.3725. Failure in this zone / a bumper NFP print will see initial support at 1.3530/50 challenged before the figure.

We note that despite the recovery from the lows and better risk mood, cable implied volatility has had the biggest rise of all the majors recently. This points to the market continuing to be fearful of renewed losses.

USD/JPY consolidates just below recent highs

This pair moves where US 10-year Treasury bond yields go, as we have said many times. After trading in a narrow range for most of the summer, the pair surged higher for six straight days in late September as yields jumped from 1.30% to above 1.50%. The pair appreciated close to three big figures over the same time period hitting a high at 112.07.

After being overbought, we pulled back to the August high at 110.80 which now acts as solid support. First resistance which pushed prices down yesterday sits at 111.65. If we can beat this with momentum still bullish, then we should see new cycle highs.