Pound Sterling Reacts Favourably to NI Protocol - GBP/USD, GBP/JPY Rise

POUND STERLING (GBP/USD, GBP/JPY) ANALYSIS

• Sunak’s agreement with the EU to be tested back home by Tory Brexiteers and DUP

• Key technical levels analysed for GBP/USD and GBP/JPY

• Risk events: US manufacturing and services PMI data to keep the USD in focus

• The analysis in this article makes use of chart patterns and key support and resistance levels.

SUNAK’S AGREEMENT WITH THE EU TO BE TESTED BACK HOME

Rishi Sunak relayed his optimism around the details of the newest version of the Northern Ireland Protocol – a framework that governs the flow of goods from England to Northern Ireland despite the two countries remaining in the United Kingdom.

The new ‘Windsor Framework’ proposed a green lane for goods remaining in Northern Ireland and a red lane for goods destined for EU member Ireland and the rest of the EU which, naturally, will undergo more rigorous checks. The agreed deal needs to appease Tory Brexiteers and the DUP in order to be accepted.

News of the deal moving forward has lifted the pound against a number of G7 currencies, something that has not been said all that often recently. UK pessimism around the economy appears to be easing slightly according to the latest findings from the Gfk consumer report as UK citizens see their personal financial position improving over the coming months.

POUND STERLING TECHNICAL LEVELS TO NOTE

Cable reversed declines at the 23.6% Fib retracement at 1.1950, closing above the psychologically important 1.2000 level. Today thus far, GBP/USD continues the bullish impetus, trading above the descending trendline resistance. A close above the trendline would suggest that the bullish momentum may follow and the pair could eye a return to the top side of the multi-month range between 1.2000 to 1.2445. Before that, the pair sees 1.2300 as the next level of resistance, with support back at 1.2000.

Daily GBP/USD Chart

Source: TradingView, prepared by Richard Snow

The 4-hour chart provides a closer look at the latest move which now looks set for a test of the upper side of the channel. A break above would see 1.2200 as the next level of resistance, while a close back within the channel and a possible move towards 1.2030 will be of note for GBP/USD bears.

4-Hour GBP/USD Chart

Source: TradingView, prepared by Richard Snow

GBP/JPY ACCELERATES ON NI PROTOCOL OPTIMISM, BOJ DOVISHNESS

The yen has surrendered much of its gains that were built up due to mass speculation that a policy change at the Bank of Japan (BoJ) could be ushered in by the new nominated head Kazuo Ueda. Since then, the man touted to take over from Kuroda in April has backtracked from suggestions that the Bank could be headed in a different direction, stating that low interest rates and loose monetary policy remains appropriate.

The pair has put in two days of impressive gains (GBP strength, JPY weakness) and is on track for a third. Prices rose off the 23.6% Fib of the major 2020 to 2022 move at 160.80 and more recently, rose off the 161.30 - a significant level of support during 2022. Bulls will be eying 166.30 ahead of 169.00. Support remains at 161.30

GBP/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

MAIN RISK EVENTS FOR THE WEEK AHEAD

A dollar focused economic calendar has the potential to scupper any USD counter moves unfolding at present. Strong manufacturing and services PMI could keep the dollar supported, limiting cable’s current move higher.

--- Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX