GBP/USD - Bullish outside day, focus on the Yen

The return of the "USD-dumping" theme post-US CPI release pushed GBP/USD above 1.40 yesterday.

The price action engulfed previous day's high-low, meaning the GBP/USD created a "bullish outside day candle" yesterday. This, coupled with a close above 1.3986 (38.2% Fib R of 1.4345-1.3765) has boosted expectations of further upside in the pair.

However, the momentum studies are biased bearish, i.e. the 10-day MA is still sloping downwards. Further, the Japanese Yen is driving the action in the FX markets. Yen caught a fresh bid in Asia after Japanese Finance Minister Aso played down the need for FX intervention. The resulting drop in USD/JPY helped Cable hold above 1.40.

Moreover, the JPY continues to rise in the face of rising Treasury yields, suggesting the US yields could be rising for all wrong reasons (like fiscal profligacy). Also, it could be an advance indication that markets are heading towards another round of risk aversion (Yen is classic anti-risk currency).  

In such a scenario, Cable could turn lower as the Pound ranks last on the list of anti-risk currencies, courtesy of Brexit uncertainty and domestic political chaos.

The UK economic calendar offers no first tier data releases today. Hence, the spot is at the mercy of the broader market sentiment and action in the Japanese Yen.

GBP/USD Technical Levels

Failure to hold above 1.3986 (38.2% Fib R of 1.4345-1.3765) would allow a re-test of downward sloping 10-day MA positioned at 3937 and 1.39 (psychological support). On the higher side, immediate resistance is seen at 1.4055 (50% Fib R of 1.4345-1.3765). A close higher could yield rally to 1.4124 (61.8% Fib R of 1.4345-1.3765) and 1.4167 (Jan. 30 high).