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EUR/USD: Ahead of the US Federal Reserve FOMC Meeting

The World Bank said last week that risks of a recession in 2023 are growing amid simultaneous tightening of monetary policy by the world's leading Central banks and the energy crisis in Europe. According to Citigroup strategists, the dollar remains the only safe haven for investors to hedge against the risk of drawdown in investment portfolios.

Global stock markets have lost $23 trillion since the early 2022, and bond prices have also declined. As for the US currency, it continues to grow, unlike stocks and other risky assets. According to experts' forecasts, the DXY Dollar Index may come close to 112.00 points over the next three months, renewing a 20-year high. Investors' belief that the US economy will cope better with the impending global recession than the economies of other countries and regions strengthens the dollar as well.

Markets are now focused on the next FOMC meeting of the US Federal Reserve, which will be held on Wednesday, September 21. The key parameters that determine the monetary policy of the Central Bank at the present stage are inflation and the state of the labor market. Important statistics were released last week, including retail sales and unemployment claims in the US. This data strengthened investors in the opinion that the Fed will continue the policy of quantitative tightening (QT). According to the CME Group, the probability of another rate increase by 75 basis points (bp) is estimated at 74%, and by 100 bps at 26%. In addition, Wells Fargo analysts believe that the rate hike will be supplemented by an acceleration in the rate of balance sheet reduction.

The Fed's forecast for a neutral level of interest rates will be updated at this meeting as well. The median forecast for the federal funds rate in 2022 is expected to be revised to 3.875%, up from 3.375% in the June forecast.

All of the above steps may lead to further strengthening of the dollar and the fall of the stock market. The reverse scenario will be possible only if the announced plans are suddenly abandoned. However, this can only happen with a sharp decline in GDP, rising unemployment and a convincing victory over inflation. Neither one, nor the other, nor the third has yet been observed in the United States.

The Consumer Price Index (CPI), published on September 13, fell from 8.5% to 8.3% over the month. However, the forecast assumed a stronger fall, to 8.1%. An additional negative was the rise in core inflation to 6.3% y/y, which is the highest since March and more than three times higher than the Central Bank's target of 2%. But the labor market, on the contrary, is doing quite well, which supports forecasts for a rise in interest rates. Employment growth over the past two months has been robust, averaging 421K new jobs.

As for the Eurozone, inflation accelerated to 9.1% in August. Based on this, some analysts believe that the ECB may also continue to raise the rate in 0.75% increments. However, the next meeting of this regulator is not yet soon, on October 27. So it lags far behind in tightening (QT) from its overseas counterpart. At the same time, according to Rabobank strategists, the unstable situation in the region may mean that "raising rates will not significantly strengthen the euro." Given the strength of the US dollar, experts believe that the EUR/USD pair may fall to 0.9500 in the coming weeks.

The EUR/USD ended the week at 1.0013. At the time of writing this review, on the evening of Friday, September 16, the votes of the experts are distributed as follows. 75% of analysts say that the pair will continue moving south in the near future, another 25% vote for the continuation of the side trend along Pivot Point 1.0000. There is not a single vote on the side of the bulls.

Among the trend indicators on D1, 65% are red, 35% are green. Among the oscillators, 25% are on the green side, the same 25% on the red side, and 50% are colored neutral gray.

The pair has been moving along the parity line for the past four weeks. The main trading range was within 0.9900-1.0050. Taking into account breakdowns in both directions, it is somewhat wider: 0.9863-1.0197. The next strong support after the 0.9860 zone is located around 0.9685, the bears' target, as mentioned above, is 0.9500. The resistance levels and targets of the bulls look like this: 1.0050, 1.0080, 1.0130, then 1.0200 and 1.0254, the next target area is 1.0370-1.0470.

In addition to the FOMC (Federal Open Market Committee) meeting and subsequent forecasts and comments, we expect fresh data on unemployment in the US next week. It will be published on Thursday September 23. And business activity indicators (PMI) in Germany and in the Eurozone as a whole will become known at the end of the working week, on Friday, September 23.

GBP/USD: Ahead of the Bank of England Meeting

The British currency has set another anti-record. Having risen to 1.1737 at the beginning of the week, GBP/USD then turned around and flew down rapidly. Wednesday brought a little respite, and then the flight continued. The landing occurred on Friday 16 September at 1.1350. The pair was this low 37 years ago, in 1985. The last chord of the week sounded 75 points higher, at 1.1425.

Apart from the strengthening of the dollar on expectations of a rate hike by the Fed, additional pressure on the British currency was exerted by a drop in retail sales in the United Kingdom. They fell 1.6% m/m in August, more than three times the 0.5% forecast.

According to analysts, a strong technical correction can stop the collapse. And that's only for a while. Strategists from MUFG Bank believe that the downtrend of GBP/USD may continue to a historic low of 1.0520. "With the UK budget and current account deficits combined to reach an impressive 15% of GDP, downward pressure on the GBP will continue," they write.

The Bank of England will also announce its interest rate decision the next day after the FOMC meeting, on Thursday, September 22. The main forecast suggests that it may rise by 50 bp, from 1.75% to 2.25%. However, it is possible that the regulator will immediately raise the rate to 2.50%, which will support the British currency for some time.

However, this is a double-edged sword. If the rate increase forecast comes true, this will create an even greater burden on the country's economy, whose health is already causing serious concern. We previously wrote that, according to the estimates of the British Chamber of Commerce (BCC), the UK is already in the midst of a recession, and inflation will reach 14% this year. And according to Goldman Sachs, it could reach 22% by the end of 2023, which will provoke a protracted economic downturn and a contraction of the economy by more than 3.5%. British energy regulator Ofgem has already announced that average annual electricity bills for UK households will rise by 80% from October. And according to the Financial Times, the number of fuel-poor households will more than double in January to 12 million.

Ahead of the Fed and Bank of England meetings, the median outlook for next week looks neutral. A third of the analysts side with the dollar, another third - with the pound, and another third have taken a neutral position. The readings of the indicators on D1 are almost all red again. These are 100% among the trend indicators. For oscillators, 85% point south and 15% point east. No oscillators are pointing north.

As for the bulls, they will meet resistance in the zones and at the levels of 1.1475, 1.1535, 1.1600, 1.1650, 1.1710-1.1740, 1.1800, 1.1865-1.1900, 1.2000. The nearest support is in the 1.1400-1.1415 zone, followed by the September 16 low at 1.1350. One can only guess to what levels, given the increased volatility, the pair may fall further. Let us only repeat that the 1985 historical low is at 1.0520.

Among the events of the coming week, except for the Bank of England meeting, the calendar includes Friday, September 23, when data on business activity (PMI) in the UK will be published. It should also be noted that the country has a bank holiday on Monday, September 19.

USD/JPY: Ahead of the Bank of Japan Meeting

In addition to the Fed and Bank of England meetings, the Bank of Japan (BOJ) will also meet next week. According to forecasts, the Japanese regulator will continue to adhere to the ultra-soft monetary policy and keep the negative interest rate (-0.1%) unchanged.

A miracle can happen of course, but its probability is close to 0. At the same time, the BOJ's unilateral actions, according to economists from Societe Generale, will only be enough to stop the weakening of the yen. But they will not be enough to reverse the USD/JPY downtrend. Societe Generale calls a recession in the US, which will lead to a drop in the yield of US Treasury obligations, as another prerequisite.

USD/JPY ended the trading session last week at 142.90, failing to reach the 145.00 high. However, according to Bank of America analysts, the pair's bullish sentiment remains, and it is still aimed at moving towards 150.00. At the same time, bank specialists note the following three levels: Fibo 38.2% correction (head and shoulders) at 145.18, the peak of 1999 at 147.00, and the target A=C at 149.53.

The closest resistance for the pair, just like a week ago, is 143.75. The bulls' task No. 1 is to gain a foothold above 145.00. Back in the spring, when analyzing the rate of the pair's rise, we made a forecast according to which it could reach a peak of 150.00 in September. And it may come true against the background of a rise in the Fed's interest rate. Supports for the pair are located at the levels and in the zones 142.00-142.20, 140.60, 140.00, 138.35-139.05, 137.50, 135.60-136.00, 134.40, 132.80, 131.70.

The opinion of Bank of America analysts is supported by 65% of experts, 25% have taken the opposite position, the remaining 10% remain neutral. Oscillators on D1 are 100% on the green side, although 10% of them signal being overbought. Among trend indicators, 75% are green and ­25% are red.

With the exception of the BOJ meeting, no important macro data on the Japanese economy is expected to be released this week. Traders should also note that Monday, September 19 and Friday, September 23 are non-working days in Japan.

CRYPTOCURRENCIES: ETH After the Merge: Fall Instead of Growth

We usually start our review with the main cryptocurrency, bitcoin. But this time, let's deviate from the rules and give the palm to the main altcoin, Ethereum. This is due to an event that may become the most important for the crypto industry in 2022. On September 15, the ETH network hosted the global update The Merge, which involves the transition of the altcoin from the Proof-of-Work protocol to Proof-of-Stake (PoS). This means that now the security of the blockchain will be ensured not by miners, but by validators: users who have deposited and blocked their share of coins (staking).

Now, instead of running large networks of computers, validators will use their Ethereum cache as a means of validating transactions and mining new tokens. This should improve the speed and efficiency of the network so that it can process more transactions and solve the problem of user growth. The developers claim that the update will make the network that hosts the ecosystem of cryptocurrency exchanges, lending companies, non-playable token (NFT) markets and other applications more secure and scalable. In addition, cryptocurrencies have been constantly criticized for their huge energy consumption. Ethereum will now consume 99.9% less of it.

Enthusiasts believe that this merge will revolutionize the industry and allow Ethereum to overtake bitcoin in capitalization and value. However, many authoritative voices sound much calmer. For example, Bank of America (BofA) believes that this hard fork will not solve the problem of scalability or high fees but may lead to wider institutional adoption. The notable decrease in power consumption after The Merge will allow some investors to purchase this altcoin for the first time. "The ability to place ETH and generate higher quality returns (lower credit and liquidity risk) as a validator or through staking could also drive institutional adoption," BofA admitted.

CoinShares Chief Strategy Officer Meltem Demirors looks more pessimistic. He believes that investors are ignoring the overall market situation in the hype around the Merge. And it's not certain that this event will attract significant investment capital: "The reality is more prosaic," says the CoinShares strategist. "At the global level, investors are concerned about rates and macro indicators. And I don't believe that significant amounts of new capital are likely to enter ETH."

Time will tell how the market will eventually react to the Merge. In the meantime, instead of growth, there has been a fall. The trigger was the collapse of stock indices (S&P500, Dow Jones and Nasdaq), which was provoked by US inflation data for August. Market participants decided that in such a situation the Fed would tighten its monetary policy more actively and raise interest rates. It is expected that the rate will rise by another 0.75% or even 1.0% next week. As a result, the dollar began to rise sharply, while risky assets, including bitcoin and Ethereum, fell. BTC fell to $19,341 by Friday evening, having lost 15% of its value over the week, ETH fell to $1,403, "shrinking" by 20%.

According to many experts, due to the hawkish position of the Fed and the ECB, the dynamics of the crypto market will remain negative at least until the end of the year. Against the backdrop of a reduction in market risk appetite, it will be difficult for bitcoin to stay above not only the psychologically important level of $20,000, but also above the June 18 low of $17,600. The latter threatens a further collapse.

A trader and analyst under the nickname filbfilb allowed in an interview with Cointelegraph the bitcoin to fall from current levels to $10,000-11,000. According to the specialist, bitcoin has become highly correlated with the US stock market, which is under enormous pressure due to the Fed's policies. The first cryptocurrency behaves as a risky asset, not as inflation insurance.

The expert noted that the upcoming winter will be a serious test for residents and politicians of the European Union, the consequences of which will have a negative impact on hodlers. The important thing will be how the countries of the Old World will cope with the energy crisis. According to him, everything is in the hands of diplomats who are able to prevent an emergency. Otherwise, risky assets will face a difficult future. "The dialogue between Russia and NATO is important: the sooner it starts, the higher the bitcoin low will be", filbfilb emphasized.

It should be noted here that the dependence of BTC on the US stock market weakened sharply in August and was at the annual low. However, it has begun to grow again and, according to the TradingView service, the correlation between bitcoin and the S&P 500 index has reached 0.59. The situation is similar with the Nasdaq. The correlation with it fell to 0.31 in August, and it rose to 0.62 in September. Analysts remind that the dependence of the crypto sphere on the stock market becomes strong after the correlation index rises above 0.5. When 0.7 is reached, the dependence becomes ideal.

However, despite the negative sentiments, there is still hope to see light at the end of the tunnel. The aforementioned filbfilb called bitcoin's Q1 2023 rally "obvious". The expert sees two reasons for this. The first is the seasonal factor. Downtrends end 1000 days after the halving (which will be early next year. The second is a change in sentiments to positive ones, based on game theory. With a probability of 2/3, the expert suggested that Europe will survive the coming winter. But if things go badly, it will increase the likelihood of a dialogue with Russia that will bring stability in the short term.

Cryptocurrency analyst with the nickname Rager does not believe in the decline of BTC to $12,000. He agreed that there are no guarantees when dealing with bitcoin. But, in his opinion, it is very likely that the asset is forming a bear market bottom above $19,000. Another analyst and trader with the nickname Rekt Capital believes that everything is moving towards the final phase of bitcoin's decline. "A significant part of the BTC bear market is behind us, and the entire bull market is ahead. The bottom of the bear market will be in November, December or the beginning of the Q1 2023."

Rekt Capital noted that the data signal a possible rise in BTC by 200%, but there is one caveat: Bitcoin could fall even more before it goes up. "Of course, in the short term, the BTC price could fall by 5%-10%," Rekt Capital writes. "But in the long term, a rally of more than 200% is very likely."

Despite the depreciation of BTC, Michael Saylor, the founder of MicroStrategy, hopes for the best. His company intends to proceed with the acquisition of this asset. It will reportedly sell $500 million worth of its own shares. The proceeds from these sales will be used, among other things, to replenish the cryptocurrency stocks. Note that MicroStrategy is the largest corporate bitcoin holder. It owns 129,699 coins purchased at an average exchange rate of $30,664. The last purchase (480 BTC) was made in June.

At the time of writing (Friday evening, September 16), this MicroStrategy investment is deeply unprofitable, as BTC/USD is trading at $19,730 (ETH/USD - $1,435). The total capitalization of the crypto market has again fallen below the psychologically important level of $1 trillion and is $0.959 trillion ($1.042 trillion a week ago). The Crypto Fear & Greed Index fell 2 points in seven days from 22 to 20 and is still in the Extreme Fear zone.

The stronger than expected consumer inflation data from the US basically sealed the case for a 75bps hike by Fed next. Dollar ended as the strongest one last week, as supported by risk aversion too. But the greenback could only close above prior week's high against Canadian and New Zealand Dollar, suggesting that momentum was relatively unconvincing. Yen recovered on intervention threat by Japan, and closed as second strongest, followed by Euro.

Commodity currencies ended as worst performers on risk sentiment. It's hard to say which one of Aussie, Kiwi and Loonie has an advantage over the others. Yet, it's the weakness in Pound that caught most attention, which hit multi-decade lows against Dollar and Swiss Franc.

Market fully pricing in 75bps Fed hike, Dollar index bounded in range

After stronger than expected August CPI reading from the US, markets are now fully pricing in a 75bps rate hike by FOMC this Wednesday on September 21. Indeed, there is 18% chance of a 100bps hike. Fed is likely not to upset market expectations for now, and show panic. But there could be hawkish surprises from the new economic projections and dot plot, which indicates higher terminal rate for current cycle, and a longer period to stay there.

Major US stock indexes closed deeper lower, reversing all of prior week's rebound. S&P 500's close on Friday was not a very bad one. But further decline would be in favor as long as 4119.28 resistance holds. Current fall from 4325.28 is seen as part of the corrective pattern from 4818.62, which could fall through 3636.87 to 50% retracement of 2191.86 to 4818.62 at 3505.24 before completion.

10 year-yield extended recent rise from 2.525 and breached 3.483 resistance, but could's close above. There could still be strong resistance from 3.483 to bring reversal, to extend the corrective pattern from there with a third leg (down). Yet, sustained break of 3.483 would indicate resumption of larger up trend. In that bullish case, next target is 61.8% projection of 1.343 to 3.483 from 2.525 at 3.847.

Dollar index bounded last week but stayed below 110.78 short term top. More consolidative trading could be seen in the near term. While bearish divergence condition in daily MACD indicates loss of upside momentum, there is so sign of reversal. Current up trend should resume sooner or later through 110.78. That could happen with either an up trend resumption in USD/JPY, or down trend resumption in EUR/USD, or both, in reaction to FOMC.

Yen recovered on jawboning, but no change in bearish trend

Talking about USD/JPY, the pair will also face another event of BoJ rate decision on Thursday. BoJ should remain firmly on hold on monetary policy, and reiterate the need to do so. Last week rebound in Yen was somewhat attributable to jawboning of Japanese officials. But it should be noted that Japan is concerned with rapid, one-sided depreciation in the exchange rate only. That is, they're concerned about the speed, rather than the direction of Yen. Such message would be echoed by comments of BoJ Governor Haruhiko Kuroda.

Technically, outlook is USD/JPY remains clearly bullish. Any further retreat should be contained by1 39.37 resistance turned support. Break of 144.98 resistance would pave the way to 147.68 long term resistance. Break there will target 161.8% projection of 126.35 to 139.37 from 130.38 at 151.44 next.

GBP/CHF hit multi-decade low ahead of BoE and SNB

Two more central banks will meet this week, including BoE and SNB. Sterling lost much ground last week after data showed headline CPI slowing, while retail sales contracted in both volume and value term. While BoE is expected to deliver another 50bps hike, the path after that is less certain than other major counterparts. SNB is expected to join the 75bps hike club, and finally leave negative interest rate behind. The central bank will also continue to give a node to Franc's appreciation, which could help cap inflation.

GBPCHF broke through pandemic trough last week and hit a new multi-decade low. Both daily and weekly MACD suggests that it's still in downside acceleration mode. Near term outlook will stay bearish as long as 1.1187 resistance holds. Next target is 200% projection of 1.3070 to 1.2134 from 1.2598 at 1.0726. This target could be easily reached should BoE sounds a bit more dovish than market expected.

Gold breaking down, could 55 month EMA save it?

Another major development in the markets last week was the break of a key support level at around 1680 in Gold. The selloff came on the back on aggressive tightening by global major central banks, not just Fed.

Technically, Gold should have completed a long term double top reversal pattern (2074.74, 2070.06). Yet, it's trying to draw support from 55 month EMA (now at 1652.71), which might give it a life. In any case, near term outlook will stay bearish as long as 1734.92 resistance holds. Current fall would target 61.8% projection of 2070.06 to 1680.83 from 1807.66 at 1567.11.

However, break of 1734.92 would argue that the 55 month EMA has done it job, and stronger rebound would be seen back to 1807.66 resistance, for confirming near term bottoming.

USD/CAD Weekly Outlook

USD/CAD's up trend from 1.2005 resumed last week and hit as high as 1.3306. Initial bias stays on the upside this week for 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. Break there will target medium term fibonacci level at 1.3650. On the downside, below 1.3238 minor support will turn intraday bias neutral first. But retreat should be contained well above 1.2952 support to bring another rally.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2716 support holds.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only. That is, up trend from 0.9506 (2007 low) is still expected to resume at a later stage. This will remain the favored case as long as 1.2061 support holds, which is close to 50% retracement of 0.9406 to 1.4689 at 1.2048.

EUR/USD rebounded to 1.0197 last week but was rejected by 55 day EMA and near term falling channel. Initial bias is turned neutral this week first and outlook stays bearish. On the downside, firm break of 0.9863 support will resume larger down trend. On the upside, break of 1.0197 resistance will now raise the chance of larger trend reversal, and target 1.0368 resistance.

In the bigger picture, down trend from 1.6039 (2008 high) is still in progress. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. In any case, outlook will stay bearish as long as 1.0368 resistance holds, in case of strong rebound.

In the long term picture, long term down trend from 1.6039 (2008 high) is extending. Next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694. This will now remain the favored case as long as 1.0635 support turned resistance holds.

USD/JPY stayed in consolidation below 144.98 last week and outlook is unchanged. Initial bias stays neutral this week first. While deeper retreat cannot be ruled out, downside should be contained by 139.37 resistance turned support. On the upside, break of 144.98 will resume larger up trend to 147.68 long term resistance. Break there will target 161.8% projection of 126.35 to 139.37 from 130.38 at 151.44 next.

In the bigger picture, up trend from 101.18 is still in progress, as part of the whole up trend from 75.56 (2011 low). Further rise should be seen to 147.68 (1998 high). For now, break of 130.38 support is needed to be the first indication of medium term topping. Otherwise, outlook will stay bullish even in case of deep pull back.

In the long term picture, rise from 101.18 is seen as part of the up trend from 75.56 (2011 low). Further rally is expected to 100% projection of 75.56 (2011 low) to 125.85 (2015 high) from 98.97 at 149.26, which is slightly above 147.68 (1998 high). This will remain the favored case as long as 55 week EMA (now at 125.61) holds.

GBP/USD's down trend resumed last week by breaking 1.1404 support. Initial bias stays on the downside this week for 61.8% projection of 1.3748 to 1.1759 from 1.2292 at 1.1063. On the upside, break of 1.1737 resistance is needed to indicate short term bottoming. Otherwise, outlook will remain bearish in case of recovery.

In the bigger picture, based on current momentum, fall from 1.4248 (2018 high) is probably resuming long term down trend from 2.1161 (2007 high). Sustained break of 1.1409 will target 61.8% projection of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675. This will remain the favored case for now as long as 1.2292 resistance holds.

In the longer term picture, long term down trend from 2.1161 (2007) high is still in progress. Firm break of 1.1409 will target 61.8% projection of 1.7190 (2014 high) to 1.1409 (2020 low) from 1.4248 (2021 high) at 1.0675.

USD/CHF recovered after dipping to 0.9478 last week but recovered. Initial bias stays neutral this week first. Overall, corrective pattern from 1.0063 is probably still extending. On the upside, firm break of 4 hour 55 EMA (now at 0.9644) will target 0.9868 resistance first. Further break there will argue that larger up trend is ready to resume through 1.0063. On the downside, below 0.9478 will extend the fall from 0.9868 towards 0.9369 support.

In the bigger picture, current development suggests that up trend from 0.8756 (2021 low) is still in progress. Sustained break of 1.0063 will target 100% projection of 0.9149 to 1.0063 from 0.9369 at 1.0283, and then 1.0342 (2016 high). For now, this will remain the favored case as long as 0.9369 support holds, even in case of deep pull back.

In the long term picture, outlook is mixed with deeper than expected fall from 1.0063, but some support is seen from 55 week EMA (now at 0.9460). Overall, though, USD/CHF is seen as in sideway pattern from 1.0342 (2016 high). Range trading should continue until further development.

AUD/USD breached 0.6680 support briefly last week but failed to close below. Initial bias remains neutral this week first. Decisive break of 0.6680 will resume larger down trend. Next target will be 0.6461 long term fibonacci level. On the upside, above 0.6769 minor resistance will turn bias back to the upside for 0.6915 resistance instead.

In the bigger picture, price actions from 0.8006 (2021 high) is seen more as a corrective pattern to rise from 0.5506 (2020 low). Or it could also be a bearish impulsive move. In either case, outlook will remain bearish as long as 0.7135 resistance holds. Next target is 61.8% retracement of 0.5506 to 0.8006 at 0.6461.

In the long term picture, rejection by 0.8135 resistance suggests that the long term down trend from 1.1079 (2011 high) is not ready to reverse. Yet, the structure of the fall from 0.8006 still argues that it's a corrective move. Hence, break of 0.5506 low is not envisaged for now. The long term outlook stays neutral first, and will be reassessed later after the fall from 0.8006 completes.

USD/CAD's up trend from 1.2005 resumed last week and hit as high as 1.3306. Initial bias stays on the upside this week for 100% projection of 1.2005 to 1.2947 from 1.2401 at 1.3343. Break there will target medium term fibonacci level at 1.3650. On the downside, below 1.3238 minor support will turn intraday bias neutral first. But retreat should be contained well above 1.2952 support to bring another rally.

In the bigger picture, down trend from 1.4667 (2020 high) should have completed at 1.2005, after defending 1.2061 long term cluster support. Rise from there should target 61.8% retracement of 1.4667 to 1.2005 (2021 low) at 1.3650. This will remain the favored case now as long as 1.2716 support holds.

In the longer term picture, price actions from 1.4689 (2016 high) are seen as a consolidation pattern only. That is, up trend from 0.9506 (2007 low) is still expected to resume at a later stage. This will remain the favored case as long as 1.2061 support holds, which is close to 50% retracement of 0.9406 to 1.4689 at 1.2048.

GBP/JPY stayed in consolidation pattern from 168.40 last week and started another falling leg. Initial bias is mildly on the downside this week for 159.42 support. But downside should be contained there to bring rebound. Firm break of 169.91 will resume larger up trend. However, break of 159.42 support will now be a sign of bearish reversal and target 155.57 support next.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Sustained break of 61.8% retracement of 195.86 (2015 high) to 122.75 (2016 low) at 167.93 will be a long term bullish signal, and could pave the way back to 195.86 high. This will remain the favored case as long as 155.57 support holds, even in case of deep pull back.

In the longer term picture, rise from 122.75 could be the third leg the the pattern from 116.83 (2011 low). Further rise will remain in favor as long as 55 month EMA (now at 150.68) holds. Sustained break of 61.8% retracement of 195.86 to 122.75 at 167.93. will pave the way to 195.86 (2015 high).