gbpusd usdjpy are approaching key long term supports 1818332016

We have warned yesterday about the sudden and swift herding behaviour of market participants that have gyrated towards the “risk on” theme play which can see a sudden reversed “shock”.  As the prices of risky assets got bid up quickly, they face the risk of “buy the rumour, sell the fact” effect since recent opinion polls on the U.K.’s EU referendum have indicated a tight race or a swift unwinding of these positions as the unexpected occurs. Currently, we are seeing such a scenario being unfold in the markets reinforced by the “Leave camp” that is leading.

Current vote counts results as at 12.17 Singapore time shows the “Leave” camp leading by 51.8% with 37 results left to declare. As more than 50% of the results have been declared across the regions, BBC has forecasted the “Leave camp” to win by 52% over the “Remain” at 48%.

Let’s us take a look at the two major currency pairs, GBP/USD & USD/JPY that are the epicentre of this financial storm from a technical analysis perspective.

GBP/USD

(Click to enlarge chart)

As seen on the long-term monthly chart of GBP/USD, the pair has been evolving within a long-term “Expanding Wedge” since February 1991.

After this morning, 24 June 2016 Asian session bearish reaction (tested first) right at the predefined 1.4830 resistance, the GBP/USD is now coming close to the long-term “Expanding Wedge” support at 1.3300/1.3000 level which also confluences with a Fibonacci cluster.

 USD/JPY

(Click to enlarge chart)

As seen on the long-term weekly chart on USD/JPY, current price action has tumbled right into the key long-term pivotal support at 101.25/100.70 (printed a low of 99.02 in current Asian session) which also confluences with a Fibonacci cluster. In addition, the weekly RSI oscillator has almost reached an extreme oversold level which highlights the risk of a rebound at this juncture.

Also do note that the breakeven USD/JPY rate for the Japanese corporate sector for FY2015 is set at 103.20 based on the information from Mizuho Bank. Therefore the “pain threshold” has been breached and the Japanese central bank, BOJ and the Ministry of Finance may intervene to “slow-down” the strength of the JPY given the major event risk that is occurring at this juncture.

Conclusion

The anticipated unwinding of the “risk on” theme play is now unfolding right in front of us as we wait for the final voting results on the EU referendum to be out at around 2pm, Singapore time.

The two currency pairs, GBP/USD and USD/JPY that are the epicentre of this financial storm are approaching/testing their respective key long-term supports of 1.3300/3000 and 101.25/100.70 respectively. Therefore, we should be playing very close attention on the aforementioned support levels as they are being challenged because we may see a coordinated central banks’ intervention to steam the “animal spirts” given their recent “whatever it takes” rhetoric.

Watch the weekly closing level on the GBP/USD and USD/JPY for any potential bullish reversal price actions that can have a domino effect across other asset classes.

Charts are from eSignal

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