Pound Sterling Price Action Setups: GBP/JPY, GBP/USD, EUR/GBP

Pound Sterling Price Action Ahead of US CPI

• Major evet risk is upon us: US CPI, UK GDP
• GBP/JPY exhibiting a bullish stance, eying 2015 high
• GBP/USD consolidates ahead of top event risk – seeking direction
• EUR/GBP triangle pattern reveals tendency for mean reversion

Elevate your trading skills and gain a competitive edge. Get your hands on the Pound Sterling Q1 outlook today for exclusive insights into key market catalysts that should be on every trader’s radar:

Major Event Risk is Upon us: US CPI, UK GDP

The last three trading days have been building up to today and arguably tomorrow for sterling pairs. US CPI for December is anticipated to reveal a step lower in core inflation while the headline measure is expected to rise ever so slightly.

Something to consider in the coming months is the shipping disruptions taking place in the Red Sea, which is likely to see shipping companies pass on the higher security/rerouting costs to the end consumer which would show up in future CPI figures. Looking ahead to today’s US CPI print, it is difficult to envision a scenario where potentially hotter inflation results in a stronger dollar with any momentum. The disinflation process is well underway in America and any lingering price pressures are likely to fall away due to base effects.

UK GDP on Friday is likely to make for some grim reading, with anaemic growth expected in November, with the three-month average turning negative (-0.1%).

Customize and filter live economic data via our DailyFX economic calendar

GBP/JPY Exhibiting a Bullish Stance, Eying 2015 High

The pound has displayed differing performance depending on which currency you pair it with. In this case, GBP/JPY has performed rather well since the test of the 200 simple moving average (SMA) and the 78.6% Fibonacci retracement of the major 2015 to 2016 decline (179.82).

Fundamentally, the case for a policy reversal in Japan has subsided after analysing weaker CPI and wage data, seeing the yen surrender a portion of its multi-month gains. GBP/JPY has since validated the bullish advance via yesterday’s strong green candle, emanating from the bull flag pattern.

Prior resistance at 184.00 now turns to support with the 2015 level of 188.80 comes into focus as resistance. The RSI approaches overbought territory but reveals there is still some room to trade higher before overheating. Today the pair is slightly softer and a move back towards 184.00 may present a better opportunity for GBP/JPY bulls to assess potential long entries.

GBP/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

GBP/USD Consolidates Ahead of Tier 1 Event Risk – Seeking Direction

While GBP/JPY presents a case for a potential bullish bias in sterling, GBP/USD appears at a crossroad where the future direction is rather unclear. The pair has achieved higher highs and higher lows – the very definition of an uptrend but the gradient of the move has levelled out over the last six weeks.

The late December swing high of 1.2828 is yet to be approached and resistance has appeared around 1.2770 evidenced by a number of upper wicks at this region on the daily candles. Perhaps a softer than expected CPI print could do the trick but the pair looks in real need of momentum one way or another to break out of this consolidatory pattern.

Prices trade above the 50 and 200 SMA and the very same lagging indicators have revealed a ‘golden cross’ – a typically bullish phenomenon for trend traders. Failure to retest the swing high may see gravity take effect, pulling the pair towards 1.2585 before assessing the next move.

GBP/USD Daily Chart

Source: TradingView, prepared by Richard Snow

EUR/GBP Triangle Pattern Reveals a Tendency for Mean Reversion

GBP/JPY presents a bullish case for the pound, GBP/USD a mixed (range bound opportunity) and now EUR/GBP presents a more bearish view of sterling. When viewing the pair with a medium-term lens, a triangle pattern can be seen after connecting the highs and lows.

Prior moves from the top of the pattern towards the bottom, and visa-versa, have been extreme and as the pattern narrows these may become more short-lived. Now if you zoon out even further, it becomes clear that EUR/GBP has traded either side of the 0.8635 level which almost acts as a line of best fit as it intersects price action horizontally.

Prices have recently bounced off the upward sloping trendline support, towards the significant 0.8635 level and potentially even approach the upper trendline acting as resistance. For now however, 0.8635 and the 200 SMA remain key hurdles to overcome

EUR/GBP Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX