The British pound forecast remains modestly bullish following that hawkish Bank of England rate cut last week, especially against currencies where the central bank is deemed to be a bit more dovish than the UK central bank. For the pound to maintain its bullish bias intact, we will now need to see continued strength in UK data for investors to further price out the odds of another rate cut this year. In this edition of Technical Tuesday, we will focus on the following pound crosses:
- GBP/JPY: Can the Guppy break through the 200.00 hurdle?
- GBP/USD: Cable holds around 1.3500
- GBP/NZD needs to hold above 2.2750 – 2.2800 key resistance range
GBP/USD: Key data to impact GBP forecast this week
For sterling, tomorrow morning’s CPI is the big one (07:00 BST), while PMIs on Thursday and Fitch’s UK rating review on Friday will also keep traders busy. In so far as CPI is concerned, expectations are for both headline and services inflation to edge higher, to 3.7% and 4.8% respectively. That would reinforce the recent hawkish shift in Sonia pricing. Odds of another BoE cut by year-end have collapsed – yesterday dipping below 50% before settling around 14bp. In short, risks for the pound forecast are tilted to the upside into the CPI print. UK inflation has been on the ascendency in the last three months, which is part of the reason why the Bank of England was so split in its decision to cut rates. Climbing from 2.6% in April to 3.6% in July, inflation has accelerated by 1 percentage point. Any further increase will put to bed calls for a November rate cut.
The key event for the US dollar is the Jackson Hole Symposium with Friday, being the key day when then focus will be on Powell who will deliver a speech. After a weak jobs report and revisions raised speculation of multiple rate cuts, will the Fed Chair give the greenlight? If so, this could pave the way for the GBP/USD to potentially start climbing towards high 1.30s and approach 1.40s in the coming weeks – assuming that there is no collapse in UK data in the meantime.
For the GBP/USD forecast, key support is seen initially around 1.3500, with 1.3435 being the next hurdle and then 1.3370 is the big one. A decisive break below 1.3350 would be a short-term bearish development for the pound forecast and GBP/USD currency pair. Resistance is seen around 1.3588, marking the double top high.
GBP/JPY stalls at 200.00 level for now
The GBP/JPY has found some resistance around the 200.00 level, which is hardly a surprise given then psychological significance of this level. But the underlying trend is bullish, and we could see an eventual breakout if UK data permits. Should we see a clean break above this hurdle then 202.00 could be the next stop. Support that needs to hold comes in around the 199.00 level with 199.20 also being a short-term support. If the Guppy breaks below these support levels, then at that point we may see a more significant correction than merely a consolidation that we have seen in the last few days. Still, my base case scenario remains bullish, although a big caveat being UK CPI tomorrow.
GBP/NZD breaks key hurdle
The GBP/NZD will face lots of volatility in the next couple of days with a rate decision from the RBNZ to come in the early hours of Wednesday’s session before the focus shifts to UK CPI in the early London trade. From a purely technical point of view, the path of least resistance remains to the upside for this pair, especially after the breakout above 2.2750 – 2.2800 area. This zone will need to be watched closely. We are bullish above it, bearish below it.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
