GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

British Pound Outlook:

  • The three major GBP crosses continue to move in a way that indicates greater strength in the pound.
  • Better than expected UK labor market data and inflation estimates suggest the Bank of England will raise rates again in March.
  • Recent changes in ronline trader positioning suggest a bullish bias for GBP/USD rates, a bearish bias for EUR/GBP rates and a mixed outlook for GBP/JPY rates.

Data points to more BOE hikes

Earlier this week, the pound was facing cautious comments from the Bank of England’s chief economist, Huw Pill. Last weekhe commented that he feared “that taking unusually large policy actions could validate a market narrative that Bank policy is either foot on the accelerator or foot on the brake”. Data over the past few days has seemingly persuaded traders that a November 2021 disappointment is unlikely to materialize at the March BOE meeting.

The UK labor market report for November and December 2021 showed the economy was more resilient than expected amid concerns over the omicron variant of COVID-19. January’s UK inflation rate (CPI) report beat estimates as price pressures hit a new 30-year high. The net result was a rise in expectations for a BOE rate hike in March, providing a tailwind to major GBP crosses.

GBP/USD RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to February 2022) (CHART 1)

GBP/USD rates rose through the 23.6% Fibonacci retracement at 1.3580, in the process treating the descending trendline from the June and October 2021 highs as support. Bullish momentum continues to build, with the pair above its daily envelope of 5, 8, 13, and 21-EMA, which is in bullish sequential order. The daily MACD is rising above its signal line, while the daily Slow Stochastic is poised to enter overbought territory. Further gains to 1.3700, the descending trendline from the June 2021 and January 2021 highs, are expected in the coming sessions.

IG Customer Confidence Index: GBP/USD Rate Forecast (February 17, 2022) (Chart 2)

Sterling Technical Analysis: GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

GBP/USD: Retail trader data shows 42.48% of traders are net long with a ratio of short to long traders of 1.35 to 1. The number of net long traders is 9.43% lower than yesterday’s and 14.04% lower than last week’s, while the number of net-short traders is 19.56% higher than yesterday’s and 18.09% higher than this week’s last.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net short suggests that GBP/USD prices may continue to rise.

Traders are even sharper than yesterday and last week, and the combination of current sentiment and recent shifts gives us a stronger GBP/USD bullish contrarian trading bias.

GBP/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to February 2022) (CHART 3)

Sterling Technical Analysis: GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

GBP/JPY rates continue to rise above the descending trendline from the July 2007 (all-time high) and August 2015 highs, while climbing above the ascending trendline since the lows of March 2020 and December 2021. The pair is above its daily EMA envelope, which is in bullish sequential order. The daily MACD is rising above its signal line, and the daily Slow Stochastic has risen above its middle line.

While GBP/JPY rates have so far been capped by the descending trendline from the October 2021 and January 2022 highs, the bullish momentum continues to pick up, suggesting that a return to the 2021 high at 158 .22 may not be far off.

IG Customer Confidence Index: GBP/JPY Rate Forecast (February 17, 2022) (Chart 4)

Sterling Technical Analysis: GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

GBP/JPY: Retail trader data shows 25.91% of traders are net long with a ratio of short to long traders of 2.86 to 1. The number of traders net long is 3.00% higher than yesterday’s and 5.07% lower than last week, while the number of net-short traders is 0.51% higher than yesterday and 0.34% higher than this week last.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net-short suggests that GBP/JPY prices may continue higher.

Positioning is less net-short than yesterday but more net-short since last week. The combination of current sentiment and recent changes gives us another GBP/JPY mixed trading bias.

EUR/GBP RATE TECHNICAL ANALYSIS: DAILY CHART (February 2021 to February 2022) (CHART 5)

Sterling Technical Analysis: GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

EUR/GBP rates have slowly but surely reversed since February’s ECB and BOE meetings, treating their daily 21-EMA as resistance amid the rebound of recent days. The daily EMA envelope is now in bearish sequential order, with the pair below its daily 5-EMA. The daily MACD has moved lower on its signal line, while the daily Slow Stochastic is about to cross below its middle line. Further decline is expected in the coming sessions back to the 2022 low set at 0.8284.

IG Client Sentiment Index: EUR/GBP rate forecasts (February 17, 2022) (chart 6)

Sterling Technical Analysis: GBP/JPY, GBP/USD, EUR/GBP Rate Outlook

EUR/GBP: Retail trader data shows that 74.31% of traders are net long with a ratio of long to short traders of 2.89 to 1. The number of net long traders is 6.35% higher than yesterday’s and 24.87% higher than last week, while the number of net-short traders is 12.59% lower than yesterday and 33.97% lower than this week last.

We generally take a contrarian view of crowd sentiment, and the fact that traders are net buyers suggests that EUR/GBP prices may continue lower.

Traders are sharper than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger contrarian EUR/GBP-bearish trading bias.

— Written by Christopher Vecchio, CFA, Senior Strategist

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