British Pound Forecast: GBP/AUD, GBP/CAD, GBP/NZD Rates
British Pound Outlook:
- The British Pound’s performance against the commodity currencies has been a mixed bag at the start of March, and through 2021, its been less impressive than gains by GBP/JPY or GBP/USD.
- GBP/CAD has fallen back through recent uptrend support, while neither GBP/AUD nor GBP/NZD have been able to crack key resistance.
- According to the IG Client Sentiment Index, the British Pound has a mixed if not bearish trading bias.
Commodity Currency GBP-crosses Lose Upside Momentum
The British Pound has been a top performer in 2021, and we haven’t spared any language describing the situation the UK is facing relative to other developed economies. To put Sterling strength in context, even amid the breakneck pace of gains by agricultural and metals commodities, the British Pound has been able to outpace the commodity-sensitive major currencies.
At least that was the case coming into today. Another surge higher in global bond yields and energy prices (thanks, OPEC) has investors shifting allocation across FX markets. GBP/CAD has fallen back through recent uptrend support, while neither GBP/AUD nor GBP/NZD have been able to crack key resistance. Against the backdrop of the February US jobs report which is rekindling talk of the ‘reflation’ trade, the three commodity currency GBP-crosses may be poised for more downside in the near-term.
GBP/AUD RATE TECHNICAL ANALYSIS: DAILY CHART (January 2020 to March 2021) (CHART 1)
GBP/AUD has been stable through the first week of March, breaking neither the February high (1.8112) nor the February low (1.7689). In fact, the high/low established during the last week of February also encompassed the entirety of price action in the preceding month. The uptick in volatility (as evidenced by the wider trading range) suggests that a turn in price action may be coming.
The only issue is, however, that GBP/AUD hasn’t necessarily had a trend; there’s not really an ability to turn from bearish to bullish or vice-versa. And, taking a longer-term perspective, GBP/AUD remains trapped in a slightly descending parallel channel dating back to late-May 2020. If anything, the pair looks destined to stay rangebound for the foreseeable future; better opportunities may arise elsewhere among GBP-crosses in the next week.
GBP/CAD RATE TECHNICAL ANALYSIS: DAILY CHART (February 2020 to March 2021) (CHART 2)
GBP/CAD has been among the most active commodity currency GBP-crosses in recent days, with the uptrend from the December 2020, January 2021, and February 2021 uptrend breaking on the first day of March. Several failed attempts to recapture the uptrend accumulated in recent days, and with the burst higher by crude oil prices (again, thanks OPEC) has helped draw positive flows to the Canadian Dollar (offsetting changes in the risk-on/off paradigm otherwise).
Bearish momentum is beginning to gather pace. GBP/CAD rates are below their daily 5-, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily Slow Stochastics have quickly reached oversold territory, while daily MACD continues to pullback while above its signal line. A move below the 61.8% Fibonacci retracement of the 2020 high/low range at 1.7477 would increase the odds of a deeper setback towards the 50% retracement at 1.7290.
GBP/NZD RATE TECHNICAL ANALYSIS: DAILY CHART (January 2020 to March 2021) (CHART 3)
GBP/NZD’s rally stalled at a very significant confluence of resistance levels in recent days, in what may ultimately be the crucial determining price action for a longer-term breakout attempt. In the short-term, the February high at 1.9418 has refused to break. Similarly, the 23.6% Fibonacci retracement of the 2020 high/low range at 1.9287 continues to serve as a magnet for price action, which has capped moves higher since mid-November 2020.
But most importantly, the ascending trendline from the October 2008 and August 2015 lows cuts across the chart at 1.9350 today, exactly where GBP/NZD rates were trading at the time this report was written. If GBP/NZD rates were to settle above the February high of 1.9418, it would constitute an effort towards a significant reversal and establish a false bearish breakout below the ascending trendline from the October 2008 and August 2015 lows. Traders should be watching GBP/NZD more than the other two pairs mentioned in this note, in my opinion.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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