Analysis of GBP/USD, EUR/GBP, GBP/AUD

GBP PRICE, CHARTS AND ANALYSIS:

Read More: Oil Price Forecast: WTI and Brent Trickle Higher as OPEC Seminar in Vienna Kicks Off

GBP, UK CONSTRUCTION PMI AND BoE DECISION MAKER PANEL SURVEY

GBP looks set to continue its excellent performance against major peers in the days and weeks ahead. Market participants are of the opinion that the UK has a bigger challenge in combatting inflation which may result in a higher peak rate from the Bank of England (BoE) in comparison to the Federal Reserve and European Central Bank (ECB). As things stand market participants are pricing in a 6.5% peak rate by March 2024.

Taking a look at the inflation picture and it is getting harder to disagree with market participants despite the BoE feeling that inflation should fall pretty quickly in the second half of the Year. This morning BoE Decision Maker Panel Survey will only serve to strengthen the BoE’s belief that inflation is on its way down with businesses expecting output price inflation to fall over the next year as the year-ahead output price inflation was expected to be 5.3% in the three months to June, down from 5.4% in the three months to May.The one-year ahead CPI inflation expectations decreased to 5.7% in June, down from 5.9% in May with the current CPI perception of firms resting around 8.9% down from the 9.8% in May. However, at the moment prices remain sticky as firms reported the annual unit cost growth remained stable in June at 9.4%. Until we see expectation turn into concrete data reading my overall feeling regarding the UK and Global inflation picture has not changed with more stickiness ahead in my humble opinion.

Headline Inflation Comparison US, UK and Euro Area.

Source: TradingView, Created by Zain Vawda

This morning also brought the UK Construction PMI data which showed a decline for the first time in five months. The drop came about following a slump in housing activity while residential work recorded its fastest decline in around 3 years. A rare positive from the data came in the form of input prices, which decreased for the first time since January 2010. According to Tim Moore, Economics Director at S&P Global Market Intelligence the weaker housing market conditions in the wake of higher borrowing costs acted as a major constraint on UK construction output in June. Even with the slowdown there is little chance that we will see a pause from the Bank of England (BoE) at the July meeting which bodes well for continued GBP strength.

PRICE ACTION AND POTENTIAL SETUPS

GBPUSD

GBPUSD put in a decent upside rally this morning after consolidating above support at the 1.2680 handle. Looking at price action and it appears we could be on the way to fresh highs with last nights slightly hawkish FOMC minutes failing to derail upside momentum.

Dropping to the 2-hour timeframe and we did get a golden cross pattern in the Asian session as a precursor to the rally we have seen in the European session. GBPUSD now just 80-pips away from the YTD with the 1.3000 psychological level looking particularly appealing.

Alternatively, the ascending trendline and 50-day MA are immediate support areas keeping the uptrend valid at this stage. Only a daily candle break and close below the trendline and recent swing low around the 1.2600 handle could convince me to alter my current bullish bias on cable.

Key Levels to Keep an Eye On:

Support levels:

• 1.2680
• 1.2600
• 1.2568 (50-day MA)

Resistance levels:

• 1.2850 (YTD High)
• 1.3000 (psychological level)
• 1.3250

GBP/USD Daily Chart

Source: TradingView, Prepared by Zain Vawda

GBPAUD

From a technical perspective, GBPAUD has been particularly interesting and a pair I have been watching closely. (Take a look at my analyst pick on GBPAUD here). As discussed in my analyst pick, I was looking for a fresh high on GBPAUD following a third touch of the ascending trendline which played out to perfection as GBPAUD printed a fresh high around the 1.9240 handle on June 28.

GBP/AUD Daily Chart

Source: TradingView, Prepared by Zain Vawda

Following some consolidation, the pair found support at the psychological 1.9000 handle with a bullish engulfing candle close yesterday hinting at further upside. Looking at price action and given that we have had a pullback I still fancy further gain for GBP with the fundamental backdrop supportive of such a move as well. The RBA opted to pause rate hikes once more with the BoE expected to deliver a further rate hike this month with more being priced in already by market participants.

READ: The Reserve Bank of Australia: A Trader’s Guide

EURGBP

EUR/GBP Daily Chart

Source: TradingView, Prepared by Zain Vawda

EURGBP on the daily chart above is on its way to print fresh lows following a retest of the ascending trendline following the breakout we had on May 31. EURGBP is really interesting and is also my top trade idea for Q3 which you can download here.

Looking at overall price action I do think we could tap the 0.8500 psychological level which would be fresh low before a potential retracement back toward the 0.8560 resistance are or potentially the 50-day MA which currently rests at 0.8639. This would provide potential shorts with a better risk-to-reward opportunity as a push lower toward the 0.8350 support area.

Looking at IG client sentiment data and 73% of traders are currently holding long positions on EURGBP. Given that we typically take a contrarian view of client sentiment data we could see a short-term correction before downside continuation resumes.

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda