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British Pound Technical Forecast: GBP/USD, EUR/GBP, GBP/JPY, GBP/CHF

British Pound Technical Forecast: GBP/USD, EUR/GBP, GBP/JPY, GBP/CHF

2020-02-22 22:00:00
James Stanley, Strategist
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GBP, British Pound, Sterling Talking Points

  • The British Pound was along for the ride in a number of currency pairs this week.
  • While macro items remain in the spotlight, the potential for continued volatility remains.
  • GBP/JPY and EUR/GBP may be more attractive for Sterling strength, while GBP/CHF more attractive for GBP-weakness.

GBP Goes Along for the Ride as Manic Macro Items Take the Stage

In a week in which a number of macro markets went haywire, the British Pound was relatively quiet, all-in-all. To be sure, big moves did show in a number of markets, such as GBP/USD or GBP/JPY. But, it appears as though that drive was coming from the counter-currency in each pair as both the US Dollar and Japanese Yen went into some aggressive trends throughout the week. So, at this point, the trader’s stance around the British Pound is likely going to depend on the currency its being matched up with and, below, I sift through four of the more popular GBP-pairings in the effort of investigating strategy potential for the week ahead.

GBP/USD Crushed by the Weight of USD Strength

The first four days of this week saw an aggressively strong US Dollar as the currency punched up to fresh three-year-highs; and this is for a currency that last week moved into its most overbought state since August of 2018. As US data remained rather bright, the USD continued to catch flows even as rate expectations were edging-lower for later this year. In GBP/USD, this amounted to another support breach as price action pushed down to fresh two-month-lows, further unwinding the November-December bullish breakout.

As looked at in the webinar on Thursday, currency markets were primed for pullback and that’s what ended up showing on Friday, as a really bad PMI report compelled a USD sell-off. This helped GBP/USD to catch a reprieve as price action jumped back towards the vaulted 1.3000 psychological level in the pair.

GBP/USD BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -5% -4% -5%
Weekly -25% 73% 2%
Current Retail Sentiment in GBP/USD
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For next week the forecast will be set to neutral. While there’s a recent rash of momentum on the downside, the longer-term formation appears open for upside; and that confliction is enough to set the technical forecast to neutral for the week ahead.

GBP/USD Technical Forecast: Neutral

GBP/USD Daily Price Chart

GBPUSD Daily Chart

GBP/USD on Tradingview

EUR/GBP Remains Near Three-Year-Lows as Sellers Pull Back on the Throttle

In a week that saw relative weakness in both the Euro and British Pound, there wasn’t much for excitement in the cross pair of EUR/GBP. The context, however, is a bit more interesting, as last week saw an aggressive downside push that put prices very close to the three-year-low that was set in December of last year. Sellers pulled back on the throttle this week as a quick bounce developed on Wednesday and held through Thursday. But, sellers came back on Friday to hold price action around the 50% marker of the 2008-2015 major move in the pair.

EUR/GBP BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -4% -18% -14%
Weekly 54% -8% 6%
Current Retail Sentiment in EUR/GBP
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With previously aggressive downside momentum, coupled with a horizontal level of stubborn support, bearish breakout potential can remain into next week and the forecast for EUR/GBP will be set to bearish.

EUR/GBP Technical Forecast: Bearish

EUR/GBP Weekly Price Chart

EURGBP Price Chart

EUR/GBP on Tradingview

GBP/JPY Breaks Out as the Yen Breaks Down – but Can it Continue?

In another case of the British Pound going along for a ride on the basis of flows in the counter-currency in a pair, GBP/JPY put in a bullish breakout as the Japanese yen broke down this week.

Until last week, it had been abnormally quiet in GBP/JPY; a pair noted for its penchant for volatility, earning the nicknames of ‘The Dragon’ or ‘The Widowmaker.’ Of recent, however, the dragon has remained subdued and fewer widows have been made as GBP/JPY has stuck to a meandering range pretty much since late-December. Given the acceleration in the move that showed through the back-half of this week, it would appear that the potential for more gains remains. The primary point of obfuscation, however, is the 145 psychological level lurking just above. Nonetheless, given the breakout, the push up to fresh two-month-highs and the potential for even more Japanese Yen weakness, the forecast for GBP/JPY will be set to bullish for the week ahead.

GBP/JPY BULLISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -12% 19% 0%
Weekly 4% 62% 23%
Current Retail Sentiment in GBP/JPY
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GBP/JPY Technical Forecast: Bullish

GBP/JPY Four-Hour Price Chart

GBPJPY

GBP/JPY on Tradingview

GBP/CHF Backs Down from Bullish Posture, Prevents Reversal Potential

In a world where few currencies appear primed for strength, save for a US Dollar that’s already become massively overbought, traders are left with a few sub-optimal choices of projection. One possible candidate for currency strength is the Swiss Franc, which has remained surprisingly weak against the US Dollar and, until recently, the British Pound. Last week saw GBP/CHF scale up to a fresh higher-high after building a series of higher-lows. But that sequence was flipped on its head this week as the pair pushed back down from the 1.2800 handle, and started to make a series of lower-lows.

Given the potential for Franc-strength, this could keep GBP/CHF as an interesting option for strategies around GBP-weakness, and for next week, the forecast will be set to bearish.

GBP/CHF Technical Forecast: Bearish

GBP/CHF Weekly Price Chart

British Pound Technical Forecast: GBP/USD, EUR/GBP, GBP/JPY, GBP/CHF

GBP/CHF on Tradingview

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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