The dollar traded mixed against its G10 peers during the European morning Thursday. It was higher against JPY and EUR, in that order, while it was lower against AUD, NOK, GBP, NZD and CAD. The greenback remained virtually unchanged against CHF and SEK.

The British pound firmed after the Bank of England's Monetary Policy Committee (MPC) voted 8-1 to keep rates on hold at 0.5%. For the second month, Ian McCafferty was the lone dissenter to vote for a rate hike. The minutes of the meeting, which were released at the same time, showed that the recent stock market volatility and China's developments did not materially alter the MPC's central view of the economy. Even though the downside risks to world activity have increased, they argued that it was too early to conclude that UK's economy is at risk. Following the overall optimistic tone in the minutes and the unchanged split vote, GBP/USD rallied and broke above the 1.5400 resistance area but fell back again to test it as a support this time. For the rally to continue, we need to see the bulls gaining enough strength around that territory to push the price above 1.5450 obstacle, in my view.

GBP/JPY surged following the Bank of England rate decision, but the move was halted slightly below our 187.60 (R1) resistance zone. The pair subsequently retreated, to test the 186.00 (S1) obstacle as a support this time. Given that the MPC members showed little concern over the recent international events and kept their upbeat view of the UK's economy, I would expected GBP/JPY to advance again, at least for another test of the 187.60 (R1) area. A break above that level could trigger further upside extensions, perhaps towards our next resistance of 188.50 (R2). This would print a higher high on the 4-hour chart, and shift the short-term picture slightly to the upside, in my view. Our short-term momentum studies support the notion for further advances. The RSI found support at its 50 level and bounced up, while the MACD, already in its positive territory, seems willing to cross above its trigger line. As for the broader trend, as long as the pair is trading above the black uptrend line taken from the low of 10th of October 2013, I would keep my view to the upside. Given the negative divergence between our daily momentum studies and the price action however, another leg down for a test of that uptrend line cannot be ruled out.
Support: 186.00 (S1), 184.60 (S2), 183.90 (S3)
Resistance: 187.60 (R1), 188.50 (R2), 189.80 (R3)

By

Marshall Gittler

Head of Global FX Strategy IronFX Global Ltd