British Pound Talking Points:
BoE surprised this morning by not raising rates as the markets were looking for a 15 bp move.
This led to a strong sell-off of the pound after the bank had previously laid the groundwork for a more restrictive policy. But after yesterday’s dovish FOMC meeting, the Bank of England also took a dovish stance, helping to propel risk assets higher even as the GBP rolled over.
analysis contained in the article is based on price action AND chart formations. For more information on price action or chart patterns, take a look at our DailyFX Education section.
British pound was just crushed when the Bank of England failed to hit rates as many expected. While the bank remains wary of inflation, the Bank of England adopted an equally accommodating tone after the FOMC meeting the day before.
clear conclusion so far has been: central banks do not take the current growth environment for granted nor do they want to jeopardize the trends that have developed from the easy money policies unleashed during the pandemic.
In the US, however, that horizon is a bit clearer, as there is some growth accompanying the prospect of the bank returning to a bull cycle next year, while the Bank of England was a case in a more defensive cara, trying to push inflation rates higher to cararate even if growth remains slow.
This deviation is fully visible in GBP / USD, which has now fallen 300 pips since last Friday, shortly after the pair failed to break through a major resistance point.
re is still a bullish flag on the daily chart, but the continuation of that previous uptrend looks like it will have to wait as GBP / USD has started to interact again with the psychological level at 1.3500.
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GBP / USD daily price chart
Table prepared by James Stanley; GBPUSD on Tradingview
Short-term oversold GBP / USD
At this point, the GBP / USD move entered oversold territory through the RSI on the 4-hour chart; and this, combined with potential psychological support at 1.3500, keeps the door open for a short-term reversal setup, looking for a quick rebound after a deep sell-off following the Bank of England rate decision.
Looking at the short-term levels, the Fibonacci level at 1.3575 is still of interest for the low-high resistance. A hold there keeps the door open for another retest of 1.3500, after which we see the 2021 low at 1.3412.
GBP / USD four-hour price chart
Table prepared by James Stanley; GBPUSD on Tradingview
GBP / JPY gives up great support
With accommodative spending from both the Fed and the Bank of England, the outlook for the GBP / JPY may change. It will really depend on how the rate markets react in the coming weeks, but the previous reason that pushed the GBP / JPY top aggressively higher is now up for debate, to some extent.
By matching that fundamental momentum on the chart, a daily bar continues to form that has some negative consequences, removing a number of supports along the way.
Selling here could be challenging given how quickly the move has been priced in, but this keeps the door open for a possible major pullback for the pair. Entering this morning, the GBP / JPY had held support above the 155.00 threshold, even seeing a bounce after yesterday’s FOMC that pushed the pair to the 156.00 area, which this morning has held the European opening.
But as the Bank of England disappointed market expectations of a rise, the GBP / JPY reversed aggressively and continues to fall. That 155.00 zone could be reused for resistance potential, but it is almost 200 pips from the current spot price, so it seems like an ill-timed plan for now. A little closer, however, at the 153.75-154.25 area is an earlier support / break area that may help if a pullback occurs in the near term. A resistance here can keep the door open for that high-low and this can keep open the possibility of a deeper pullback on the move.
GBP / JPY four-hour price chart
Table prepared by James Stanley; GBPJPY on Tradingview
EUR / GBP to GBP-Force
For those looking at the response setups in reaction to this morning’s GBP sell-off, the EUR / GBP may have some appeal. As we heard from the ECB last week, Europe appears to be even further away from rate hikes than the UK or the US Of course, with expectations of a Bank of England rally discounted earlier this morning, the EUR / GBP traded strongly, with a new yearly low at the end of October.
Today’s weakness in the British pound, however, allowed the pair to rise to a new monthly high, encountering resistance at a Fibonacci level drawn at 0.8556.
That resistance should hold against today’s close to keep the door open for bearish swing scenarios, but if not, there is another point a bit higher on the chart that could keep similar interest plotted around the current ones. Maximum of five months in the. 8658-.8670 chart area.
EUR / GBP daily price chart
Table prepared by James Stanley; EURGBP on Tradingview
– Written by James Stanley, Senior Strategist for DailyFX.com
Contact and follow Jaime at: @JStanleyFX
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