GBP PRICE FORECAST:
- GBP/USD Retreats from Fresh YTD High on a Slightly Upbeat US Dollar.
- EUR/GBP Could be in for a Short-Term Bounce Before Sterling Bulls Return.
- Data Filled Week Ahead Which Could be a Welcome Change of Pace Following the Lack of Volatility for Large Parts of Last week.
- To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.
Read More: GBP Outlook: Analysis of GBP/USD, EUR/GBP, GBP/AUD
The GBP enjoyed a stellar end to last week marginally printing a fresh yearly high around the 1.2850 handle. The Asian session has however seen a pullback in sterling which has continued into the European session as market participants reposition ahead of a data filled week which could stoke volatility.
The US Dollar has regained some strength this morning which could be down to lackluster data out of China reigniting recessionary concerns. This is theory would see the US Dollars safe haven appeal grow and keeping the greenback supported in the short-term. Market participants also appear to be waiting on comments from Bank of England (BoE) Governor Andrew Bailey who is scheduled to speak on Monday afternoon at 15h00 GMT. Another factor which could stoke some volatility in GBPUSD may come from a host of Federal Reserve policymakers expected to speak today as the Feds latest ‘blackout period’ approaches.
Currency Strength Chart: Strongest - USD, Weakest - AUD.
Source: FinancialJuice
UK EMPLOYMENT DATA, US CPI AND UK GDP LIE AHEAD
This week will bring all important UK employment data which remains one of two key data releases ahead of the BoE meeting in August. Given the UK’s struggle with inflation the BoE will be paying close attention to wage growth tomorrow with market participants remaining hawkish with regard to the BoE’s policy moving forward. Market participants are currently pricing in around 44bps of hikes for the August meeting with a drop in wage growth likely to see a dovish repricing of rate hike expectations which in turn should see sterling face renewed selling pressure.
Later in the week, US CPI becomes the focus with the Federal Reserve meeting just over 2 weeks away. The inflation reading could hold a lot of sway in regard to the Fed policy decision on July 26, however at this stage it would take a significant drop for the Fed to continue with its recent pause in rate hikes.
On the Euro side we do not have a lot of high impact data on the calendar except for the ZEW Economic Sentiment Index. It will be interesting to gauge where the ZEW print comes in given the last two weeks of lackluster data out of the Euro Area.
TECHNICAL OUTLOOK
GBPUSD
GBP/USD Daily Chart
Source: TradingView, Prepared by Zain Vawda
GBPUSD printed a fresh high on Friday (if only just) with some dollar strength this morning facilitating a pullback in cable. Looking at it closely and depending on the daily candle close GBPUSD could print a double-top pattern similar to the one seen in late December 2022 and January 2023 (See Chart Above). Following the previous double top in January 2023 GBPUSD fell around 600 pips, will we see the same this time around?
Of course, the fundamental and macro picture is vastly different when compared to the January drop in Cable with the GBP largely supported at present. Given the macro picture at this stage any pullback here still looks likely to be nothing more than a short-term retracement rather than a change of structure and overall direction.
A deeper pullback toward the ascending trendline could materialize before GBPUSD makes it way toward the psychological 1.3000 handle. The bullish trend remains intact without a daily candle close below the 1.25909 swing low from June 28 with cable appearing poised to continue its march higher.
Key Levels to Keep an Eye On:
Support levels:
- 1.2750
- 1.2680
- 1.2580 (50-day MA)
Resistance levels:
- 1.2850 (YTD High)
- 1.3000 (psychological level)
- 1.3250
EURGBP
EUR/GBP Daily Chart
Source: TradingView, Prepared by Zain Vawda
EURGBP on the daily chart above failed to print a fresh low last week finding support around the June 19 lows of 0.8500. Following two successive doji candles it appears the pair is ready for a retracement at least in the early part of the week. In the case of EURGBP we seem to have printed a double-bottom pattern with a potential retracement toward the 0.8700 looking particularly interesting.
Looking at overall price action I do think we could return for a retest of the 0.8700 handle which would see the 100 and 200-day MAs come into play as they rest at 0.8720 and 0.8733 levels respectively. However, to reach there EURGBP first needs to navigate its way through significant resistance around the 0.8570 and 0.8630 handles with the latter lining up with the 50-day MA.
Looking at IG client sentiment data and 73% of traders are currently holding long positions on EURGBP. Given that we typically take a contrarian view of client sentiment data we could see a short-term correction before downside continuation resumes in line with the technical outlook at present.
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--- Written by Zain Vawda for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
