Will the UK GDP-Led Bounce in the British Pound Last? GBP/USD, EUR/GBP, GBP/AUD

British Pound Vs US Dollar, Euro, Australian Dollar – Price Setups:

• GBP post-UK GDP gains could prove to be short-lived.
• EUR/GBP is testing key resistance; GBP/AUD is nearing vital support.
• What is the outlook and key levels to watch in select GBP crosses?

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The British pound managed to find some support toward the end of last week after the British economy grew faster than expected. However, the support could turn out to be short-lived.

Despite the tightening in financial conditions, the US economy is proving to be far more resilient compared with some of its peers, allowing the US Federal Reserve to stay hawkish for longer. In contrast, the Euro area and the UK are experiencing sluggish growth as elevated interest rates spill over to the economy. For more discussion, see “Pound’s Resilience Masks Broader Fatigue: GBP/USD, EUR/GBP, GBP/JPY Setups,” published August 23.

Interest rate differentials continue to be in favour of the USD even as markets don’t rule out the possibility of one more UK rate hike this year. The Bank of England kept interest rates unchanged at its meeting in September and cut its economic growth forecasts in the July-September quarter, noting clear signs of weakness in the housing market.

GBP/USD Weekly Chart

Chart Created by Manish Jaradi Using TradingView

Moreover, the temporary resolution to avert a US government shutdown alleviates some of the immediate downside risks in USD. The key focus now shifts to global manufacturing and services activity data this week and US jobs data later in the week. Fed chair Powell, due to speak later Monday, is unlikely to deviate from the September FOMC meeting script.

GBP/USD: Testing vital support

On technical charts, GBP/USD has fallen under the vital cushion on the 200-day moving average, around the May low of 1.2300. The break under 1.2300 reaffirms the short-term bearish bias, as highlighted in theprevious update.

GBP/USD Daily Chart

Chart Created by Manish Jaradi Using TradingView

The next support to watch would be the March low of 1.1600-1.1800, including the March low and the lower edge of the Ichimoku cloud on the weekly charts. A break below 1.1600-1.1800 would pose a threat to the medium-term recovery trajectory. So far, the medium-term trend remains up, first highlighted late last year – see “GBP/USD Technical Outlook: Forming an Interim Base?” published October 3, 2022. On the upside, GBP/USD would need to rise above the early-August high of 1.2820 for the immediate downside risks to fade.

EUR/GBP Daily Chart

Chart Created by Manish Jaradi Using TradingView

EUR/GBP: Has it built a base?

EUR/GBP is now testing crucial resistance at the mid-July high of 0.8700, around the 200-day moving average. This resistance is key – any break above could pave the way toward the April high of 0.8875. Importantly, it would negate the bearish bias prevailing since the start of the year. Subsequent resistance is at the early-2023 high of 0.8980.

GBP/AUD Daily Chart

Chart Created by Manish Jaradi Using TradingView

GBP/AUD: Approaching strong support

Although the immediate bias is down, GBP/AUD is approaching quite strong converged support: initially at the July low of 1.8850, slightly above the June low of 1.8500 which coincides with the 200-day moving average. Deeply oversold conditions and still-constructive bias on higher timeframe charts raise the possibility of the converged support zone holding, at least on the first attempt. However, unless the cross can regain the early-September high of 1.9750, the path of least resistance remains sideways to down.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish