The British pound is steadying after recent rises in anticipation of Wednesday’s crucial UK inflation report. The annual rate of inflation in the UK is predicted to have slowed to 8.2% in June from 8.7% in May. Forecasts put annual core inflation at 7.1%. From May to June, inflation slowed to 0.4% monthly.
UK interest rates are expected to remain high for the foreseeable future since inflation has been stubbornly high. The Bank of England (BOE) has kept its aggressive stance on interest rates, boosting them by more than was expected in June and bringing them to their highest level since 2008. From their present level of 5%, market expectations place future rates at over 6%. This has led to the greatest level of net speculative long GBP positions since the CFTC began keeping track in 2014.
A recession is more likely and the UK pound is weakened if the central bank tightens monetary policy too quickly. Growth in Europe may receive a boost from China’s recent stimulus measures, which may mitigate some of the threats to the world’s second-largest economy.
GBP/USD Daily Chart
GBP/USD: Holding gains
The daily candlestick charts, which are color-coded to highlight the trend, continue to show an upward trend for GBP/USD. The advance this month to a one-year high in May validated the higher-tops-higher-bottom sequence since late 2022, paving the way for some medium-term gains beyond the daily timescale.
GBP/USD Weekly Chart
GBP/USD has broken through a key resistance level on the 200-week moving average after rising to a 15-month high last week. Two consecutive weekly closes above would constitute a major break that might pave the way for further advances. Because a reverse head-and-shoulders pattern has formed after prices rose above a slightly rising trendline from late 2022 (the left shoulder is at the low in July 2022, the head is at the low in September 2022, and the right shoulder is at the low in Q1 2023), suggesting prices will eventually rise to challenge the 2021 high of 1.4250.
EUR/GBP Daily Chart
EUR/GBP: Still holding above key support
The decline in EUR/GBP has halted in recent weeks at crucial support at the December low of 0.8545, suggesting the development of a tiny double bottom (the June low and the early July low). Even yet, the bias is still negative as long as the cross is under the 0.8635 high seen at the end of June. The immediate downward pressure has diminished, but a break above 0.8635 would start the bullish pattern, pointing to a rally towards 0.8750.
GBP/JPY Monthly Chart
GBP/JPY: On the way toward the 2015 high
With the pair’s recent surge over 172.00, the way is paved for a run at the 2015 high of 196.00 in the weeks and months ahead. However, the cross appears to be overbought in the immediate term. Therefore, a period of consolidation or mild retreat cannot be totally dismissed. As long as the cross stays above the 89-day moving average (now around 173.10), the general upward pressure will continue.
To reduce the impact of human error in trend identification, the above color-coded charts were created using trending/momentum indicators. It’s an attempt to distinguish between up and down markets, as well as between trend continuation and trend reversal. A Bullish phase is indicated by blue candles. Bearish conditions are indicated by red candles. Consolidation (inside a Bullish or Bearish phase) is served by grey candles, which can also form near the trend’s finish. The colours of the candles only show the current trend and cannot predict the future. The next bar’s candle colour can change from the previous one. In a sideways or choppy market, around a support or resistance level, or near the 200-period moving average, false patterns may appear. The author makes no assurances as to the veracity of the data presented. Results from the past may not guarantee a similar outcome in the future. Anyone who uses this data does so at their own peril.
