Technical Analysis of the British Pound: EUR/GBP, GBP/JPY, and GBP/USD Rates Perspective

Oct 7, 2022
VOT Research Desk

Key News – Insights and Analysis

The British pound is once more losing momentum swiftly as energy concerns once again take centre stage.

After the Bank of England’s intervention last week, the British Pound was far from its annual low, but it is still in a technical bind.

The British pound is beginning to weaken once more despite the Bank of England’s efforts to intervene last week. To be clear, the BOE’s sudden announcement of QE has relieved a significant amount of pressure that had built up following the mini-budget announcement made by the Truss government; The UK pension system appears to be saved for the time being.

However, the economic situation in the UK is still extremely challenging. We’ve talked about the increasing risk of stagflation for the UK economy and, by extension, the British pound over the past few months. An unfavorable combination of a contracting economy, inflation at multi-decade highs, and rising unemployment leaves UK policymakers with few viable options.

GBP/USD rates staged an impressive rebound last week after setting new annual and all-time lows. However, the pair is back below the 23.6% Fibonacci retracement from the range of the 2021 high and 2022 low, suggesting that the rally has slowed down. Similarly, momentum is beginning to shift. Although the EMA envelope is not yet in bearish sequential order, GBP/USD rates are back below their daily 5-, 8-, 13-, and 21-EMAs.Daily Slow Stochastics are on the verge of breaking out of oversold territory, and daily MACDs’ move higher below their signal line is waning ’A’ sell the rally’ mindset remains appropriate,” as it has been since mid-July.

GBP/USD: According to data from retail traders, 52.71 percent are net-long, with a ratio of 1.11 to 1.The number of net-long traders is 7.13 percent higher than yesterday and 17.08 percent lower than last week, while the number of net-short traders is unchanged from yesterday and 31.79 percent higher than last week.

We typically view crowd sentiment in a contrarian manner, and the fact that traders are net-long GBP/USD indicates that prices may continue to fall.

Positioning is net-longer today than it was yesterday but net-longer this week. We have a further mixed GBP/USD trading bias as a result of current sentiment and recent changes.

The GBP/JPY rates have reversed their gains from Monday and Tuesday in the second half of the week, losing ground quickly. Even though momentum is still positive, it is quickly fading .A move below the 50% Fibonacci retracement of the 2015 high/2020 low range around 159.94, which served as support from June to late September, is likely necessary for a larger pull back.In the near future, it does not seem likely that we will see a return to the annual low below 149.00, which was reached and then reversed in less than two weeks.

GBP/JPY: Retail trader data show that 30.47 percent of traders are net-long, with a ratio of 2.28 to 1.While the number of net-short traders is 0.92 percent lower than yesterday and 42.11 percent higher than last week, the number of net-long traders is 33.96% higher than yesterday and 21.55% lower than last week.

The fact that traders are net-short suggests that GBP/JPY prices may continue to rise, as we typically take a contrarian approach to crowd sentiment.

Positioning is net-shorter than it was yesterday, but it is net-shorter than it was last week. We have a further mixed GBP/JPY trading bias due to current sentiment and recent changes.

In an effort to break free of the descending trend line that separates the 2008 and 2016 highs, EUR/GBP rates are beginning to grind higher once more. Given the sharp reversal that occurred following the BOE’s QE announcement last week, the pair, like other GBP-crosses, does not have a consistent tone among its momentum indicators. Having said that, the groundwork has been laid for a subsequent rise in the near future.

The descending trend line from the 2008 and 2017 highs, as well as the 61.8% Fibonacci retracement of the 2020 high/2022 low range, are near 0.9004 and 0.8851, respectively, and serve as resistance in the area above. 52.45% of traders are net long, according to data from retail traders, with a ratio of 1.10 to 1.

The number of traders who are net-long is 1.59 percent lower than yesterday and 39.64 percent higher than last week, while the number of traders who are net-short is 4.07 percent higher than yesterday and 14.85 percent lower.

The fact that traders are net-long EUR/GBP suggests that prices may continue to fall, which is contrary to our usual contrarian approach to crowd sentiment.

Positioning is net-longer than it was yesterday, but net-longer than it was last week. We have a further mixed EUR/GBP trading bias as a result of current sentiment and recent changes.

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