British Pound Surges on Treasury Pick Bets, GBP/AUD Eyes Breakout

The British pound was the standout performer among the major currencies on Wednesday, buoyed by a weaker US dollar and growing optimism over the UK's fiscal outlook. Sterling rallied across the board, lifting GBP/USD to a nine-week high while GBP/AUD rebounded from support to challenge key long-term resistance.

 

 

 

Source: LSEG

 

 

Sterling Surges on Treasury Pick Speculation as GBP/USD and GBP/AUD Rally

The British pound surged across the board on Wednesday following reports that incoming UK Prime Minister Andy Burnham is considering Shabana Mahmood for Finance Minister. While Mahmood has little direct economic policy experience, markets view her as a fiscally cautious choice. Her appointment would also reduce the likelihood of Ed Miliband becoming Chancellor, a candidate investors perceive as more likely to increase public spending, boost borrowing and pursue ambitious net-zero spending plans.

 

 

 

British Pound Breaks Higher Against the US Dollar

GBP/USD rallied 1.2% to a nine-week high during its strongest session in four months, closing decisively above 1.3500. Sterling also drew support from a weaker US dollar, which fell for a second consecutive session and is now within striking distance of the psychologically important 100 level on the US Dollar Index.

The 1-hour chart shows how explosive the rally was, producing seven consecutive bullish candles during its 146-pip advance without a meaningful pullback. Prices are now consolidating in a tight range above the monthly R1 pivot (1.3521). However, after such a sharp move, the pair may be overstretched, with the RSI (14) in overbought territory, so bulls may want to be on guard for a minor pullback. The daily pivot point sits just below 1.3500, while the 15 June high aligns with the weekly S1 pivot (1.3461), providing a potential support zone.

With the US dollar retracing lower and GBP/USD maintaining its bullish momentum, buyers may be eyeing a move towards the monthly R2 pivot (1.3636), just below the May high.

Source: ICE, TradingView

 

 

GBP/AUD Bulls Eye Break Above Key Long-Term Resistance

Earlier this week, I was working on the assumption that GBP/AUD could fall. Its three-week rally had been accompanied by waning momentum, while the previous two weekly candles formed long upper wicks, culminating in a shooting star reversal below the 200-day EMA. That view appeared to be playing out on Tuesday as the pair pulled back to its 20-day EMA, although Wednesday's bullish engulfing candle suggests the pullback may already be over.

 

March High Remains the Key Bullish Hurdle for GBP Bulls

With a well-established uptrend and a potential swing low forming around the 12 June high and 20-day EMA, bulls may be preparing for another attempt to break above the 200-day and 200-week EMAs. This paints a bullish near-term picture heading into today's session, although there is also a reasonable chance of a shakeout around 1.9400 given the significance of the long-term moving averages and the March high.

Even so, unless a clear bearish catalyst emerges for the British pound, I suspect GBP bulls will look to buy any dips in anticipation of a bullish breakout above the March high. If they succeed, the 1.9595 high comes into focus for GBP/AUD.

Source: ICE, TradingView

 

 

 

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge