British Pound vs US Dollar, Euro and Japanese Yen – Rate Settings:
- British Pounds / US Dollars holding on to its recent gains.
- long speculation GBP Positioning is at the highest level since 2014.
- What are the expectations for the pound sterling /American dollarAnd EUR/GBPAnd British pound / Japanese yen?
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The British Pound holds its recent gains ahead of key UK inflation data due on Wednesday. UK CPI is expected to have eased slightly to 8.2% yoy in June from 8.7% in May. Core inflation is expected to hold steady at 7.1% y/y. On a month-over-month basis, inflation eased to 0.4% month-over-month from 0.7% in May.
Inflation has remained stubbornly high, fueling expectations of a longer hike in UK interest rates. The Bank of England responded by maintaining its aggressive stance on interest rates, rising more than expected in June, taking rates to the highest level since 2008. Market rates are pricing above 6% from the current 5%. As a result, net speculative long positions in the GBP have reached the highest level since 2014, according to CFTC data.
However, severe tightening could dampen the outlook for next year, increasing the risk of a recession, and undermining the overbought sterling. On the other hand, China’s recent stimulus measures could help mitigate some of the downside risks to economic growth in the world’s second-largest economy, providing a tailwind to European growth.
Daily chart of the British pound / US dollar
Chart by Manish Gradi using TradingView; Notes at the bottom of the page
GBP/USD: Hold for gains
From a trend perspective, the broader trend of GBP/USD is still bullish, as shown by the color-coded daily candlestick chart. Beyond the daily timeframe, from a medium-term perspective, this month’s rally to a one-year high in May confirmed the sequence of higher highs-higher-lows since late 2022, leaving the door open for some medium-term gains. (See: “British Pound Rising Ahead of the Bank of England: What’s the Upside?”, published May 8).
GBP/USD weekly chart
Chart by Manish Gradi using TradingView
A rally to a 15-month high last week pushed GBP/USD above a vital hurdle in the 200-week moving average. A decisive breakout (two consecutive weeks of closing above) could open the floodgates for further gains. This is because the rally above the slightly upward sloping trend line from late 2022 has triggered an inverse head and shoulders pattern (left shoulder at July 2022 low, head at September 2022 low, right shoulder at Q1 -2023 low), indicating To a move towards 2021 high at 1.4250 on the long term basis.
EUR/GBP daily chart
Chart created using TradingView
EUR/GBP: It is still holding above a major support level
EUR/GBP has stalled in recent weeks around key support at the December low of 0.8545, with a potential secondary double bottom unfolding (June low and early July low). However, the bias remains bearish while the pair remains below the end-June high of 0.8635. However, a break above 0.8635 would trigger the bullish pattern, indicating a rise towards 0.8750, confirming that the immediate bearish pressure has faded.
GBP/JPY monthly chart
Chart created using TradingView
GBP/JPY: On the way towards 2015 high
GBP/JPY broke above the October high of 172.00 opening the door towards the 2015 high of 196.00 in the coming weeks/months. However, the pair appears to be overbought in the near term. Hence some kind of slight consolidation/retreat cannot be ruled out. The broader bullish pressure is unlikely to fade while the pair holds above the 89-day moving average (now around 173.10).
Note: The above color-coded chart(s) are (are) based on trend/momentum indicators to reduce subjective biases in trend identification. It is an attempt to separate the bullish and bearish phases, and consolidate within a trend-versus-trend reversal. The blue candles represent a bullish stage. Red candles represent a bearish phase. Gray candlesticks act as consolidation phases (during a bullish or bearish phase), but they sometimes tend to form at the end of a trend. Candle colors are not predictive – they only indicate the current trend. In fact, the color of the candle can change in the next bar. False patterns can occur around the 200-period moving average, around support/resistance, and/or in a sideways/volatility market. The author does not guarantee the accuracy of the information. Past performance is not indicative of future performance. Users of the information do so at their own risk.
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– Posted by Manish Grady, Strategist for DailyFX.com
Connect with Jaradi and follow her on Twitter: @JaradiManish
