British Pound Q3 Technical Forecast: Attractive at Lower Levels

GBP FACING A TOUGHER BATTLE VS USD

Much like the end of Q1, GBP/USD is closing Q2 on a rather sour note. The pair rejected 1.4240-50 yet again, making it look increasingly like a double top. A sharp deceleration in the Pound following a hawkish twist by the Federal Reserve has made positioning in GBP somewhat cleaner with longs liquidated. However, this point is variable for the Pound, particularly with monetary policy tightening and a strong UK economic outlook very much reflected in the price (OIS markets price BoE hike in Q3 22). As such, it would take a move below 1.3800 to gain momentum towards the 200DMA (1.3622), where buyers are likely to sit in waiting from 1.3670 (Mar-Apr double bottom). On the flip side, the pivotal 1.40 handle may act to cap the upside, making it the first target for bulls to overcome. Should Cable break above the even figure the worst of the struggle in the second and third quarters may be past. That said, Q3 is likely to be a much choppier affair with FX markets experiencing heightened sensitivity to economic data. As it stands, risks are more geared towards dips to 1.3670 and 1.3622 rather than a break of the Feb/June peak where we are more likely to meet firm demand.

GBP/USD DAILY CHART

EUR/GBP CONSOLIDATION PERSISTING, ECB/BOE OUTLOOK TO PROVIDE DIRECTION

In Q2, EUR/GBP recorded its smallest range since Q1 2014 (249pip range) – brilliant for range traders, but a quarter to forget for most. However, if you are hoping for an exciting Q3 in EUR/GBP, you may be left disappointed. Q2 had kicked off with a false break below 0.8500 and the subsequent countertrend rally has meant that the cross has not looked back since. Rising trendline support from two major lows (the 2020 low and 2021 low) looks to keep the 0.8500 handle protected. In turn, bullish interests are likely to struggle to cross the mid-0.86s, leaving EUR/GBP more likely to consolidate a while longer. For sparks, two focal points to take note of over the quarter will be the BoE‘s August MPR and ECB’s strategy review, either of which could provide a clearer sense of direction.

EUR/GBP DAILY CHART

MAKE OR BREAK FOR GBP/JPY

GBP/JPY: A chart to watch in Q3 will be GBP/JPY, which could face a make or break moment in the grander timescale. The multi-decade trendline drawn from the 2007 and 2015 peaks had managed to cap bullish ambitions through the end of the years first half. It is possible that with the BoE closer to policy normalisation than the Bank of Japan (BOJ), a hawkish pivot would likely be enough to underpin GBP versus this and low yielders.

GBP/JPY MONTHLY CHART