GBP : Levels To Watch

(Mon, 8 Feb 2021). Risks remain tilted to the upside for the Pound, which has been reinforced by a hawkish BoE. Last week, the central bank downplayed negative interest rates, stating that they will not be operationally feasible for 6-months. In turn, with the UK’s success regarding its vaccine rollout, uncertainty over the UK outlook has eased notably since the beginning of the year and thus contributed to the outperformance in the Pound. The main focus for GBP bulls is picking crosses that have value.

GBP/USD: While the uptrend remains intact for the pair, the near-term hurdle is at 1.3740-60, which has capped further advances in GBP, raising risks of some exhaustion in the pair. Recent price action in the USD has largely been characterised by short-covering, which may still have further to run. Consequently, I expect GBP/USD to continue oscillating around the 1.37 handle with initial dips to 1.3670 (circa 20DMA) and 1.36, where support is likely to step in once again.

GBP/JPY: The cross is trading firmly in overbought territory as it chances the 2020 peak at 144.95. The combination of firmer risk appetite and rising optimism over the UK economy has catapulted GBP/JPY higher. That said, while the outlook remains encouraging for the cross to propel higher, the a fact that it is firmly in overbought territory does provide me with a cause for concern in the near term. In turn, I expect the bias to remain support on dips. Initial support sits at 144.10 (last week’s high) with 142.70 below.

EUR/GBP: Last week saw EUR/GBP break to fresh multi-month lows at 0.8740-50, a level we pointed out a few weeks ago with the vaccine trade in full swing. That said, with an ECB that is jawboning the currency and a BoE that is downplaying negative rates, there will likely be more room for further losses. CFTC data adds to this, given that speculators hold a sizeable long position in EUR/GBP, thus the cross is vulnerable to a long liquidation.The chart below provides a clearer chart of the levels that I have on my radar. First, we are currently holding the 61.8% Fibonacci retracement for now, while this may offer some short-term reprieve, the outlook remains bearish below 0.8860. On the downside, should 0.8740 break, the next level is at 0.8860-70

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