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British Pound Technical Analysis: GBP/USD, GBP/JPY

British Pound Technical Analysis: GBP/USD, GBP/JPY

James Stanley, Senior Strategist

British Pound Talking Points:

  • GBP/USD has been a slow mover even after the Bank of England’s rate hike last week.
  • GBP/JPY has shown considerable consistency in the short-term trend, but prices are nearing a key spot on the chart around five-year-highs that buyers have shown a recent tendency to shy away from.
  • GBP may be setting a trap of sorts, as USD-weakness has shown much more attractively elsewhere, such as EUR/USD; GBP/JPY remains interesting on the long side but can buyers break the recent streak of lower-highs?
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

It’s been a week of interesting reactions to Central Banks. While the Fed remains hawkish and markets are pricing in as many as 6-7 hikes this year, the US Dollar has been weak, printing a bearish engulfing candlestick during last week.

The Bank of England hiked rates last Thursday, and GBP/USD is currently below the level that it was at during that move.

And the Euro has been one of the strongest currencies in the world since last Thursday, just hours after the BoE rate hike, when the European Central Bank started to open the door to rate hikes later in the year.

All of this has been yet another lesson on the importance of expectations in markets and trading analysis.

Ahead of that BoE hike, expectations were already very high for the bank’s path of tightening this year. So high, in fact, that the hike last Thursday was widely-expected and priced-in. There was even the expectation that the BoE might hike by more or, perhaps, commit to another hike near-term. And when this didn’t happen there was reason for bulls to exit, helping the pair to pullback despite the fact that the Bank of England had just hiked rates.

At this point, there is still some bullish potential in GBP/USD. The pair is sitting on the 38.2% retracement of the Dec-Jan major move. And there’s also support from the longer-term bull flag that’s helping to hold today’s low; and there’s an assist from the 1.3500 psychological level which came into play briefly yesterday.

The problem is the lack of enthusiasm that’s shown in the pair even as the US Dollar has dropped, and that may be setting up a trap on the long side of GBP/USD.

GBP/USD Daily Price Chart

GBPUSD daily price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Levels of Note

Shorter-term charts highlight just how messy this trend has become but, once again it’s possible to glean a bullish bias, largely from the hold of support at a really big spot on the chart. The collection of the 1.3500 psychological level with the 38.2% Fibonacci retracement and the resistance side of the bull flag mark an important spot on the chart.

Resistance isn’t as well defined but it is still fairly clear, plotted at around the 23.6% retracement from that same major move. A breach through that zone, plotted from 3610-3625, opens the door for a move up to 3664 followed by the 1.3700 handle. Above 1.3700 is the current three-month-high, plotted right at the 1.3750 psychological level.

On the support side of the matter, a break below Monday’s swing low opens the door for a run back down the Fibonacci sequence, with 1.3455 followed by 1.3385.

GBP/USD Four-Hour Price Chart

GBPUSD four hour price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/JPY

Last year turned out to be a massive one for GBP/JPY, with the pair gaining more than 1300 pips in 2021 and at one point, that gain was as high as 1850+ pips.

Along the way GBP/JPY set a fresh five-year-high and this was a high watermark for the post-Brexit environment. But it was after prices pushed beyond that prior high that matters started to get dicey.

In October, just after setting the fresh high, prices reversed aggressively and put in an immediate retreat down to key support in the 148.53-149.07 area. That led into another bounce but this time, buyers couldn’t even re-test the prior high that was set a couple months earlier, and that lower-high led into a pullback that found support just inside of the 153 level a couple of weeks ago.

GBP/JPY Weekly Price Chart

GBPJPY weekly price chart

Chart prepared by James Stanley; GBPJPY on Tradingview

You may notice from that above chart, but the same swing-high from 2018 is coming back into the equation, helping to set resistance for today. And this isn’t the first time that level has been of consideration, as this also provided a quick spot of support-turned-resistance just ahead of the bearish move that bottomed out a couple of weeks ago.

That resistance, when combined with the continuation of higher-lows that’s printed since that visit inside of 153.00, can keep the door open for bullish breakout potential, near-term.

GBP/JPY Four-Hour Price Chart

GBPJPY four hour price chart

Chart prepared by James Stanley; GBPJPY on Tradingview

GBP/JPY: How Much Juice is In the Squeeze?

The big question around GBP/JPY at the moment is target potential. Can GBP/JPY finally break the string of lower-highs that’s printed near that longer-term resistance? This will be key to bullish approaches, as the bearish trendline drawn from recent swing highs projects to around the 157.50 psychological level.

If that pattern of lower-highs can be broken, then the 160 psychological level isn’t far off and this would be the next major spot to look for on longer-term charts, of course with some expectations for bumps along the way at levels such as 158.24, which currently functions as the five-year-high in GBP/JPY.

GBP/JPY Weekly Price Chart

GBPJPY weekly price chart

Chart prepared by James Stanley; GBPJPY on Tradingview

--- Written by James Stanley, Senior 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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