Oct 20, 2022
VOT Research Desk
Market Insights and Analytics
STERLING
With this morning’s announcement of yet another leadership transition at the UK PM position, headlines continue to drive GBP.
While the GBP/USD pair has recently displayed a number of short-term trends, the longer-term price action has been consolidating within the range formed in late September and early October. A significant long-term resistance level is being tested by GBP/JPY, while an extended look at EUR/GBP shows some potential.
The article’s analysis is supported by price movement and chart patterns.
With yet another leadership change at No. this morning, UK headlines are filled with more chaos.10 when Liz Truss’ resignation as PM was made public. This does not appear to have come as much of a surprise based on the GBP price action. On the back of that news, GBP/USD has seen a small boost so far, but this is within the context of the larger picture, which has largely consolidated since the GBP/USD collapse at the end of September when it moved back into the 1.1500 resistance area.
Since then, there have been a few turns to work with, but most of them have been short-term swings. The price reversed course after the 1.1500 resistance test and found support at the previous resistance around 1.0932.That resulted in a bounce to 1.1350, which bulls attempted to break through several times but were unable to do so. That caused a second drop to support, this one at a higher low, continuing the consolidation theme; and all of this leads to the rebound that occurred this morning as a result of the leadership headline.
The intermediate-term GBP/USD pair is still forming a symmetrical triangle at this point.
GBP/USD NEAR-TERM
However, there have been a few short-term swings within this consolidation. The bounce this morning can be seen at a familiar resistance-turned-support area. That lies between 1.1180 and 1.1210, which is the same region that assisted in maintaining support at the end of the previous week.
However, the size of each swing has continued to decrease as price moves deeper into the symmetrical triangle, which is not unusual for consolidation patterns. Although a symmetrical triangle typically has a strong prevailing bias that can be used to anticipate the formation’s break direction, this will typically result in a break in either direction.
Yesterday, bulls appeared to be testing for a breakout, but price quickly retreated within the formation. The support grind this morning was also testing the formation’s bottom without any obvious breaks.
Shorter-term setups can take advantage of this by looking for breaks of the 1.1180 support level and the 1.1350 resistance level before attempting to push directional themes in the pair.
A bullish break of
1.1350 would target a retest of yesterday’s high at 1.1440, followed by the longer-term zone between 1.1460 and 1.1500.A breach of 1.1180 on the support side opens the door for a move to the next support around 1.1112, where the 1.1000-1.1025 zone appears.
GBP/JPY We had examined this shortly after the GBP/JPY jumped down to a significant support area around two-year lows, which resembled a collapse. That support extends all the way down below the level of 149, which is more than 2,000 pips away from the price at the moment.
In addition, GBP/JPY is currently trading close to a six-year high, above a Fibonacci level that held advances in April and June and produced significant pullbacks each time. On Monday, the price pushed all the way up for a test of the psychological level of 170.00, which was followed by a pullback. This zone was first tested through.
However, notice how that pullback found support right around the same Fibonacci level at 168.06 and is currently moving higher, giving the impression of a subsequent breakout test at 170.00.
EUR/GBP
Recently, we have heard a lot about headlines from the UK, but is Europe really in a better place? While the current economic climate in the Eurozone suggests that a similarly difficult path lies ahead, the leadership turmoil surrounding the PM position is certainly exceptional.
Given the dynamics of late September, it was therefore somewhat surprising, at least to me, to see the EUR/GBP flare up so aggressively. The price did stay within the previously established range, which has been in place for more than five years, but it went all the way up to test the.9270 level, which is the two-year high.
There has been some settling since then. Prices are currently passing through a mid-line area in that recent range. Below that, around the.8371 level, is where longer-term support is lurking. Additionally, We will examine some possible near-term dynamics.
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EUR/GBP NEAR-TERM
A recent series of lower lows and lower highs can be seen on the daily chart below. As we are witnessing a reaction at the 61.8 Fibonacci retracements, which has been functioning similarly to a mid-line in this range, this morning may be another one of those lower-high tests.
This puts the focus on the next area of support, which is somewhere around.8650. This makes room for support at.8585.
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