British Pound Price Action Setups: GBP/USD, GBP/JPY, EUR/GBP


British Pound Talking Points:

  • The BoE surprised this morning by not hiking rates as markets were looking for a 15 basis point move.
  • This has led to a sharp sell-off in the Pound after the bank had previously laid the ground for tighter policy. But after the dovish FOMC meeting yesterday the Bank of England also came in dovish, helping to push risk assets higher even as the GBP has turned over.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

The British Pound just got crushed when the BoE didn’t touch rates as many had expected. While the bank does remain cautious around inflation, the BoE took a similarly dovish tone after the FOMC meeting the day before.

The clear takeaway thus far has been: Central banks do not take the current growth backdrop for granted nor do they want to endanger the trends that have built from easy-money policies triggered during the pandemic.

In the US, that horizon is a bit more clear, however, as there’s some growth to go along with the prospect of the bank moving back into a hiking cycle next year, whereas the BoE was somewhat of a case of a more-defensive mode, looking to nudge rates higher to temper inflation even though growth remains lackluster.

That deviation is on full display in GBP/USD which has now fallen by as much as 300 pips since last Friday, shortly after the pair after a failed to breakout at a huge spot of resistance.

There is still a bull flag on the daily chart but continuation of that prior topside trend looks like it’ll have to wait as GBP/USD has started to re-engage with the psychological level at 1.3500.

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GBP/USD Daily Price Chart

GBPUSD daily price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/USD Short-Term Oversold

At this point, the move in GBP/USD has went into oversold territory via RSI on the four hour chart; and this combined with the potential support at the 1.3500 psychological level keeps the door open for a short-term reversal setup, looking for a quick bounce after a deep sell-off following the Bank of England rate decision.

As for near-term levels, the Fibonacci level at 1.3575 remains of interest for lower-high resistance. A hold there keeps the door open for another re-test of 1.3500, after which the 2021 low at 1.3412 comes into view.

GBP/USD Four-Hour Price Chart

gbpusd four hour price chart

Chart prepared by James Stanley; GBPUSD on Tradingview

GBP/JPY Gives Up a Big Spot of Support

With dovish outlays from both the Fed and the Bank of England, the outlook for GBP/JPY may be shifting. It’ll really be molded by how rates markets respond in the weeks ahead but the prior motive that was pushing the topside of GBP/JPY aggressively higher is now in question, to some degree.

Matching that fundamental drive on the chart is a still forming daily bar that has some nasty consequences, taking out a number of supports along the way.

Selling here could be a challenge given how quickly the move has priced-in, but this does keep the door open for a possible bigger picture pullback in the pair. Coming into this morning GBP/JPY had held support above the 155.00 handle, even seeing a bounce after FOMC yesterday that pushed the pair up to the 156.00 area, which held into the European open this morning.

But as the BoE disappointed market expectations for a hike, GBP/JPY turned around with aggression and is continuing to fall. That 155.00 zone could be re-purposed for resistance potential but that’s almost 200 pips away from the current spot price, so that seems an inopportune plan for now. A bit closer, however, in the area from 153.75-154.25 is a zone of prior support/chop that may be able to help should a pullback show near-term. A hold of resistance here can keep the door open for that lower-high and that may keep open the possibility of a deeper pullback in the move.

GBP/JPY Four-Hour Price Chart

GBPJPY four hour price chart

Chart prepared by James Stanley; GBPJPY on Tradingview

EUR/GBP for GBP-Strength

For those looking at response setups in reaction to this morning’s GBP sell-off, EUR/GBP may hold some allure. As we heard last week from the ECB, Europe seems even further away from rate hikes than the UK or the US. Naturally, with expectations for a hike from the BoE getting priced-in ahead of this morning, EUR/GBP had traded heavy, with a fresh yearly low printing in late-October.

Today’s GBP weakness, however, has allowed the pair to jump up to a fresh monthly high, finding resistance at a Fibonacci level plotted at .8556.

That resistance would need to hold through today’s close to keep the door open for bearish swing scenarios, but if it doesn’t, there’s another spot a bit-higher on the chart that could retain similar interest, plotted around the current five-month-highs in the .8658-.8670 area on the chart.

EUR/GBP Daily Price Chart

EURGBP Price Chart

Chart prepared by James Stanley; EURGBP on Tradingview

— Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX