Rising BOE rate expectations have put sterling back on the radar, but the technical picture remains uneven across major GBP pairs. The strongest near-term setups may lie outside GBP/USD, with GBP/CAD and GBP/AUD looking more constructive.
View related analysis:
- Australian Dollar Outlook: AUD/USD Bears to Face Near-Term Reprieve?
- AUD/USD Q4 Outlook: RBA and Fed Hikes Set the Tone
- Tankan Backs BOJ Tightening, but Yen Rate Expectations Ease
- How to Read the COT Report to Track Forex Market Sentiment
British Pound Recovery Remains Uneven as BOE Rate Expectations Rise
Renewed bets that the Bank of England (BOE) could hike again in November have seen the British pound recover against some FX majors, though its performance has been mixed overall. While it continues to face pressure from a stronger US dollar and Japanese yen, it is taking advantage of a weaker euro, Swiss franc and New Zealand dollar, while showing the potential to gain new ground against the Canadian dollar and Aussie.
Recent economic data and BOE communication have helped revive those hawkish bets. September PMI data showed the sharpest rise in output prices since May, while several MPC members have continued to warn that inflation pressures remain persistent. With markets also pushing short-dated OIS rates higher, November is looking increasingly live for another 25bp hike.
The 3-month OIS has risen to 3.91%, around 16bp above the BOE Bank Rate, meaning markets are pricing roughly 64% of a full 25bp hike over the period.
Source: LSEG
British Pound (GBP) Technical Outlook:
While the British pound has shown signs of strength in places, its recovery has been very mixed. In fact, sterling remains under pressure against the US dollar and Japanese yen, but has put in a strong performance against the Swiss franc and euro. Yet looking across these British pound pairs, price action seems a bit fickle. Therefore, I suspect the better near-term opportunities for sterling bulls could be against the Australian dollar and Canadian dollar.
Source: ICE, TradingView
GBP/USD has fallen 3.2% from the August high, so perhaps a bounce is due. The British pound is holding above the June and March lows against the US dollar for now, but there is no certainty it will simply rebound from current levels, given the US Dollar Index extended its gains on Monday. But if GBP/USD does head for those key swing lows, I suspect it could be setting the stage for a countertrend move. It just seems too much like a 50/50 call at this stage.
EUR/GBP has rolled over nicely in line with my bearish bias. I had noted that the longer-term ascending triangle marked a target around 0.8437, and the recent countertrend move into the triangle breakout level held as resistance before rolling over. Momentum suggests the euro could weaken further against the British pound and send EUR/GBP towards the triangle target, although Monday’s long lower wick warns of weakness in the move. Perhaps bears can seek bearish reversal setups on intraday timeframes, but for now I am happy to step aside.
GBP/JPY is in some ways similar to GBP/USD. The British pound remains within an established downtrend against the Japanese yen on the daily chart, yet support is nearby. Price action is also choppy, which leaves GBP/JPY susceptible to two-way trade over the near term and makes it less attractive to my eyes for a higher-probability move.
GBP/CHF remains within an established uptrend, although volatility has risen and prices reversed sharply lower from 1.11. Monday’s bullish hammer respected 1.09 as support, so perhaps the British pound can reclaim some of Friday’s sharp losses against the Swiss franc. But given the strong momentum shift from the highs, this could also mark the beginning of a topping pattern.
GBP/CAD Technical Analysis: British Pound vs Canadian Dollar
The weekly chart shows an established uptrend overall, though price action has certainly been choppy at times, with several volatile reversals despite the broader move higher. A swing low appears to have formed at the beginning of September, just above the 50-week EMA and 200-day EMA. And after a couple of doji weeks, bullish range expansion has returned to suggest momentum has realigned with the broader uptrend for GBP/CAD.
The daily chart shows the British pound holding above the monthly pivot point at 1.8787 and the 50-day EMA at 1.8764 against the Canadian dollar. The monthly S1 at 1.8966, along with the 1.9000 handle and 1.9043 high, also provide potential upside targets for GBP/CAD bulls.
Source: ICE, TradingView
GBP/AUD Technical Analysis: British Pound vs Australian Dollar
I had been circling a potential inverted head and shoulders pattern on GBP/AUD several weeks ago, but placed it on the back burner when momentum accelerated lower. But with a bullish reversal now underway, perhaps the low of the ‘right shoulder’ has been seen. A break above the March high could confirm a longer-term bullish reversal, but for now GBP/AUD bulls may simply be focusing on a move towards the June high.
The daily chart shows the British pound retracing lower against the Australian dollar, which means I am on the lookout for a swing low on the daily chart or strong signs of a bullish reversal on intraday timeframes. Note the monthly S1 and 1.88 handle nearby, which could provide a potential support zone.
Source: ICE, TradingView
