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GBP Q1 2022 Technical Forecast: Can the Bulls Capture the Trend?

GBP Q1 2022 Technical Forecast: Can the Bulls Capture the Trend?

Tammy Da Costa, Analyst
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Sterling Technical Analysis

British Pound Retaliates Against the Dollar

Throughout the second and third quarter in 2021, the British Pound surrendered to the greenback as the safe-haven Dollar grew in popularity. With low interest rates persisting throughout last year, GBP/USD continued to fall before finding support at 1.3169, the 38.2% Fibonacci retracement level of the 2020 – 2021 move. However, after the BoE hiked rates in December, Sterling bulls took control over the trend, allowing them to remain within the confines of the descending channel.

For Q1 2022, the economic backdrop for both countries will likely provide an additional catalyst for price action. However, with markets pricing in rate hikes from the Federal Reserve and the BoE, technical factors may continue to provide zones of support for both the short and medium-term move.

After rebounding off of the 38.2% Fibonacci retracement level of the 2018 – 2020 move at 1.324, GBP/USD bulls managed to drive prices higher before facing a wall of resistance at the upper bound of the descending channel which continues to provide an additional area of support.

As bulls strive to clear the key psychological level of 1.36, price action currently remains below the 50-week moving average (SMA) and within the range of 1.32 and 1.36 respectively.

From a technical standpoint, a hold above 1.3540 (the break of prior channel resistance) leaves the door open for a move up towards 1.3684. If that level is broken, bulls may be set to retest the two month high at the key psychological level of 1.3750 after which upward momentum may prevail up to the 14.4% Fibonacci level of 1.3844. Once this level is broken, a move towards the December high of 1.4219 may be probable.

GBP/USD Weekly Chart

Chart prepared by Tammy Da Costa using TradingView

EUR/GBP Stumbles to Support

Unlike the US Dollar, the Pound triumphed over the Euro during the last three quarters of 2021 and has continued to do so into the new year. After a steep decline from the March high at 0.950, EUR/GBP found support at 0.836, the 50% Fibonacci retracement level taken between 2008 – 2015 (the historical move). With bears now determined to drive prices lower, the key psychological level of 0.820 may be on the horizon. A break below this level leaves the door open for a move towards the 61.8% retracement of the above-mentioned move at 0.802.

EUR/GBP Weekly Chart

Chart prepared by Tammy Da Costa using TradingView

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