Summary:
- GBP has been falling since last week’s BoE meeting
- Rate hike expectations are once more disappearing into the distance
- GBPUSD is retesting the 1.30 handle
Despite the shock election outcome and ongoing political uncertainty surrounding the terms of the UK’s separation from the European Union the pound had been faring pretty well of late but last week’s BoE announcement could have changed things. The rise seen since the post-Brexit lows likely began in part to an unwinding of extreme short positioning, and a worrying rise in inflation had seen the GBPUSD recover around 50% of the decline since the EU referendum heading into last week’s central bank decision in London.
GBP has fallen against all of its major peers in the past week barring the NZD. The EUR and JPY have been the biggest
A less hawkish than expected announcement (with fewer dissenters and downgrades to wage growth forecasts) saw the pound sell-off. If we put the fundamental outlook to one side for now, let’s look at the three most widely traded GBP pairs to see whether the technical situation indicates the possibility of further declines or whether this is more of a pullback in the year-to-date rise.
GBPUSD
The GBPUSD has pulled away from 2017 highs at 1.3267 after the BoE rate decision and is now once more back at the 1.30 handle. Yesterday’s candle was small but there was a breach of the prior low and should the market ended today underneath 1.3034 then there is scope for further declines. Unfortunately the charts a little messy overall however, with the rejection of the break higher seen on the 13th July provided another potential support level at 1.2960. A break and close below there would be a clear bearish development and open up the possibility of further declines to 1.2775, 1.2615 and potentially even further.
Alternatively a break back above 1.3034 would change the outlook to a more favourable one for longs who would then be looking to 1.3145 and 1.3267.
The GBPUSD has moved away from its 2017 highs and if support at 1.2960 is breached then a significant pullback may occur.
GBPJPY
The chart for this pair is clean in comparison to the GBPUSD with a long term consolidation triangle currently in play. Today price has made a clean break below 144.15 and should the market end the day below this level then there will be further evidence supporting the breakout. A rising trendline from the lows seen last year is currently around 142.65 and this could be a key level to watch if tested in the coming sessions. A break below here would pave the way for possible further declines to 139.17, 135.95 and potentially even further.
On the other hand if price can hold above this trendline then 144.15 is a key point of control that longs will want to see price move back above. The top of the consolidation formation comes in around the 148 handle, with the highest daily candlestick close at 147.80. A break above here could be seen as a major bullish development.
GBPJPY remains in a long term consolidation triangle. A breakout of this could signal the start of the next major move in this pair.
EURGBP
Should there be further declines for the GBP, there is a strong case to be made for the Euro being the best positioned major currency to benefit. The Brexit vote last June saw a large move higher in this cross and a longterm falling trendline from the all-time highs back in 2008 broken through. The market closed above the 0.8300 level at month-end and since then drops back to this region have been bought. Price is now attempting to take out last year’s high of 0.9250 after moving above 0.8965. Should the final terms be far more damaging to the UK than they are to the Europe Union, and there’s a strong case to be made that they likely will be, then further gains will likely be seen here with a move to parity not out of the question should the pound come back under long-term pressure.
The EURGBP is closing in on last year’s high of 0.9250. Should this level be broken then a move to all-time highs of 0.9802 and possible even parity can’t be ruled out.