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Technical Analysis of the British Pound: GBP/USD, GBP/JPY, and EUR/GBP

TALKING POINTS IN BRITISH POUND:

  • With this morning’s news of yet another leadership transition at the UK PM position, headlines continue to push the British Pound.
  • While the GBP/USD pair has recently shown various short-term trends, the longer-term price action has been consolidating inside the range formed in late September and early October. A significant long-term resistance level is being tested by GBP/JPY, while a longer-term look at EUR/GBP shows some potential.

More unrest is making headlines in the UK as Liz Truss’ resignation as prime minister was announced this morning, marking yet another shift in leadership at No. 10. The price movement of the British Pound suggests that this wasn’t a major surprise. The GBP/USD exchange rate has so far seen a modest increase as a result of the news, but this is limited by the larger picture, which has mostly been one of consolidation since the GBP/USD crash in late September drew back into the 1.1500 regions of resistance.

Since then, there have been several twists to consider, although they have mostly been confined to swings with shorter horizons. Following the test of the 1.1500 barrier, the price declined to find support around the earlier level at 1.0932. This resulted in a rebound into 1.1350, where bulls repeatedly attempted but failed to break through. In keeping with the consolidation pattern, it prompted another slide to support, which was at a higher low; this contributed to this morning’s rise in the strength of the leadership headline. Currently, the GBP/USD pair is still forming a symmetrical triangle.

Daily GBP/USD Chart

GBP
Source: TradingView

GBP/USD SHORTER-TERM

The consolidation has, however, been accompanied by a series of fast oscillations. The rebound from this morning is seen at a well-known location of resistance-turned-support. This plot covers the range of 1.1180 to 1.1210, which is the same area that assisted in maintaining support after the previous week.

However, it should be noted that as the price moves more into the symmetrical triangle, the magnitude of each swing has continued to shrink, which is typical for consolidation patterns. This will typically result in a break in one of the directions, but as is typical with symmetrical triangles, there isn’t always a clear bias that can be used to predict which way the formation will break.

Yesterday, it seemed like bulls would try for a breakthrough, but the price immediately returned to the shape. The support grind this morning also stressed the formation’s base but without any apparent breakdowns.

Shorter-term setups may benefit since they may wait for breakdowns of the 1.1350 resistance level or the 1.1180 support level before pushing directional trends in the pair.

If the price breaks higher, it will likely retest yesterday’s high at 1.1440 before moving on to the longer-term zone between 1.1460 and 1.1500. Regarding the support level, a break of 1.1180 allows for a move to the next support area at 1.1112, following which the 1.1000–1.1025 region enters the picture.

Four-Hour GBP/USD Chart

GBP
Source: TradingView

GBP/JPY

GBP/JPY can be your pair if you’re searching for volatile trading. Immediately after the collapse-like movement in the pound sterling in late September, shortly after the pound/yen had surged down to a significant support region at two-year lows. The 149 level, which is more than 2,000 pips away from the current price, serves as that support down below it.

Furthermore, the GBP/JPY exchange rate is now testing above a Fibonacci level that supported gains in April and June, resulting in sizeable pullbacks on each occasion. This is quite close to the pair’s most recent six-year high. On Monday, the price was pushed all the way up for a test of the 170.00 psychological level, which was then followed by a reversal. This zone was then first challenged.

However, note how the retreat found support today, pushing up toward the same Fibonacci level at 168.06, suggesting that a further breakthrough challenge above 170.00 may be imminent.

Daily Price Chart for GBP/JPY

GBP
Source: TradingView

LONGER-TERM GBP/JPY

This recent move has been highly extreme, following last month’s long-legged Doji, which has seen some brisk topside continuation through the first few weeks of October. The 170.00 level in GBP/JPY is significant, but perhaps more importantly, we can contextualize how extreme this recent move has been.

As this current resistance zone held bulls in April and June and is now being traded through, it also emphasizes how the breakout has been a pattern that has been developing for the previous several months. This maintains the possibility of a topside breakout until we see a change at the Bank of Japan. But on that subject, caution is advised since the USD/JPY pair is now approaching the 150.00 mark, which raises concerns about how Japanese policymakers would approach the situation.

However, similar to USD/JPY, there may still be bullish motivation if there is another intervention like the one we saw on 9/22 without any changes to policy, given the positive carry on the long side of the pair.

Monthly Price Chart for GBP/JPY

GBP
Source: TradingView

EUR/GBP

Recent headlines from the UK have received much attention, but is Europe truly in a better position? Even if the current leadership crisis surrounding the PM position is somewhat atypical, the economic environment in the Eurozone at the moment suggests that a similarly tricky path is in front of us.

Therefore, it was a bit of a surprise to me, at least, that the late-September dynamics would cause the EUR/GBP to spike sharply. Although the price surged up for a test of two-year highs at.9270, price movement stayed within the previously established range, which has been in place for more than five years.

Since then, there has been some settlement. Prices are now moving through the midpoint of that recent range, and longer-term support is just below that, at the.8371 level. Additionally, the following chart I’ll look at shows some potential near-term dynamics.

Monthly EUR/GBP Chart

GBP
Source: TradingView

A SHORTER-TERM EUR/GBP

We can notice a recent sequence of lower lows and lower highs on the daily chart below. The response at the 61.8 Fibonacci retracements, which has been acting as a mid-line in this range, suggests that this morning may be another one of those lower-high tests.

This draws attention to the following point of support, which is located around .8650, making room for support at .8585. Following that, the psychological level of .8500 and the Fibonacci level of .8371 enter the scene.

Daily Price Chart for EUR/GBP

GBP
Source: TradingView
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