GBP : Resilient

(Thu, 4 Feb 2021). The UK is in unchartered waters, just weeks into its post-Brexit reality separated from the European Union. There have been some rude wakeup calls along the way, including the recent row over UK shellfish being banned from being sold in the EU. UK Prime Minister Boris Johnson has been criticized over his vaccine rollout plans as the B117 mutation spreads rapidly.

But trials completed by AstraZeneca – the main vaccine deployed in the UK – show that the extended inoculation period between the first and second doses doesn’t pose a significant risk in reducing the efficacy of the vaccines. This is good news for the UK (and for the prime minister), which may reach the elusive ‘herd immunity’ status faster than other developed economies. The juxtaposition against a sclerotic EU response and endless lockdowns in France, Germany, and Italy leaves the British Pound looking relatively resilient these days.

GBP/JPY RATE TECHNICAL ANALYSIS: WEEKLY CHART (FEBRUARY 2015 TO FEBRUARY 2020)

Big picture, GBP/JPY rates have broken the descending trendline from the December 2019 and September 2020 highs, following through on the break of the downtrend from the August 2015 and December 2019 highs. I’ve previously noted that “the key test will come at the September 2020 high at 142.71, which in achieving would mark the end of the multi-year series of ‘lower highs and lower lows.’” Indeed, this has now been achieved, suggesting that a multi-year bottoming effort in GBP/JPY rates has commenced.

GBP/JPY rates are above their weekly 4, 13-, and 26-EMA envelope (one month, one quarter, and six months, respectively), which is in bullish sequential order. Weekly MACD is trending higher above its signal line, while weekly Slow Stochastics are nestled in overbought territory. The path of least resistance remains higher for GBP/JPY rates.

GBP/USD RATE TECHNICAL ANALYSIS: WEEKLY CHART (FEBRUARY 2016 TO FEBRUARY 2021)

GBP/USD rates are in the midst of consolidating after trading above the descending trendline from the November 2007 and July 2014 highs, and consistent with the previously articulated view that “breaching 1.3539 and sustaining a breakout move higher would indicate a long-term bottom has formed in GBP/USD rates.” This has been achieved. More evidence may emerge should GBP/USD get comfortable above the 76.4% Fibonacci retracement of the 2018 high/2020 low at 1.3677. GBP/USD may struggle in the near-term, however, as the DXY Index attempts to bottom.

EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (February 2020 TO February 2021)

The last time I discussed EUR/GBP rates, nearly two months ago, it was noted that “as momentum builds towards a Brexit deal – thereby avoiding a ‘no deal, hard Brexit’ outcome – traders should keep an eye for a return to the range lows near 0.8865. Breaking through this level would be an achievement two-fold, not only breaking the multi-month range support, but cutting through symmetrical triangle support off the February and November swing lows. With a deal in tow, a EUR/GBP rate selloff below 0.8865 would put the pair in bearish breakout territory.”

In bearish breakout territory indeed we are, with EUR/GBP rates moving below 0.8865. Likewise, EUR/GBP finds itself below the descending trendline from the 2007 and 2016 highs as well as the 2008 and 2016 highs. Bearish momentum is strong, with EUR/GBP rates below the daily 5-, 8-, 13-, and 21-EMA envelope, which remains in bullish sequential order. Daily MACD remains deep in bearish territory while Slow Stochastics are holding steadily in oversold territory. It appears that more weakness lies ahead.

DISCLAIMER ON

GFS ASIA TEAM

• 0
• 0
• just now
• 0