GBP/USD, EUR/GBP, GBP/AUD Price Setups

British Pound Vs US Dollar, Euro, Australian Dollar – Price Setups:

• Dovish Fed speak appears to be supporting GBP.
• Key focus is on US CPI and UK GDP data due Thursday.
• What is the outlook and key levels to watch in select GBP crosses?

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After weeks of losses, the British pound is attempting to rebound as US Federal Reserve rate hike expectations scale back ahead of the key US inflation and UK GDP data.

Markets are now pricing in around a 10% chance of a 25 basis points hike by the Fed when it meets next month, down from around a 28% chance a week ago following dovish remarks from key Fed officials. Dallas Fed president Lorie Logan and Fed Vice Chair Philip Jefferson on Monday suggested that the sharp rise in yields has tightened financial conditions, lessening the need for further interest rate hikes. Atlanta Fed President Raphael Bostic said on Tuesday he thinks the Fed doesn’t need to raise interest rates anymore.

The greenback’s failure to attract meaningful safe-haven bids despite the escalation in geopolitical tensions possibly indicates that interest rates/monetary policy is a significant driver. In this regard, the key focus is on US CPI data due Thursday: headline inflation eased to 3.6% on-year last month from 3.7% in August, while core inflation eased to 4.1% on-year from 4.3% previously. The moderation in inflation could provide an excuse to unwind some of the long USD positions, especially in the context of the shift in rates view since Monday.

GBP/USD 240-Minute Chart

Chart Created by Manish Jaradi Using TradingView

Another focus is UK GDP data is due Thursday. On a three-month average basis, GDP grew 0.3% in August from 0.2% previously. A slowing UK economy has hurt the pound, especially against the US dollar, which has benefited from a solid US economy. However, any signs that UK growth is improving could prompt speculative positioning to be reassessed – moved to minor shorts last week just a few months after longs hit the highest since GFC in July. For more discussion on GBP’s underperformance, see “Pound’s Resilience Masks Broader Fatigue: GBP/USD, EUR/GBP, GBP/JPY Setups,” published August 23.

GBP/USD: Testing vital support

On technical charts, GBP/USD’s rise above last week’s high is an encouraging sign, raising the prospect of some recovery given the slide from July. The recent gains have come about from near-strong converged support at the early 2023 lows of around 1.1800, not too far from the lower edge of the Ichimoku cloud on the weekly charts.

GBP/USD Weekly Chart

Chart Created by Manish Jaradi Using TradingView

On intraday charts, GBP/USD is testing a crucial resistance area, including the end-September high of 1.2275, near the 200-period moving average on the 240-minute chart. A break above the 1.2275-1.2375 region is needed for the immediate bearish risks to dissipate. Until then, the path of least resistance remains sideways to down in the interim.

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EUR/GBP Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/GBP: Retreat confirms ongoing range

EUR/GBP retreat from a stiff converged ceiling at the mid-July high of 0.8700, coinciding with the 200-day moving average confirms that the cross remains within its well-established range since June. The cross looks set to retest the converged floor on a horizontal trendline from June and another horizontal trendline since late 2022 (at about 0.8550-0.8600). As highlighted in the previous update, the broader bias remains down for the cross. See “British Pound Ahead of UK GDP: GBP/USD, EUR/GBP, GBP/JPY Setups,” published September 13.

GBP/AUD 240-Minute Chart

Chart Created by Manish Jaradi Using TradingView

GBP/AUD: Mild recovery in progress

GBP/AUD’s rise above minor resistance at the end-September high of 1.9125 has shifted the focus to the 200-period moving average (now at about 1.9300), which is a more significant barrier to cross. A break above the average is needed to confirm that the immediate downside risks have faded. Looking at the broader picture, the odds of further gains remain high. Any break above the average could open the door toward the early-September low of 1.9450.

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— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish