Forex Market

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GBP reacting to the BOE’s decision

After the interest rate decision by the BOE on May 6 to hike interest rates 25 bps from 0.75% to 1.00%, the pound sterling has been seen to have strong reactions.

 

Source: https://mx.investing.com/central-banks/

GBPUSD

Cable has been in a constant downward trend since last year, however, due to recent world events the price has accelerated its fall in the past 3 weeks and now even more with the decision of the BOE, giving sharp falls of up to almost 300 pips in some days, falling from 1.30000 to a new low at 1.22600 yesterday, a drop of approx. 740 pips in a few weeks.

It is currently below the Fib 61.8% level of the cycle that began in March 2020, which was at 1.24931 that was broken 3 days ago. In the last 2 days the price marked a hammer and a spinning top that are locked between 1.23-1.24, which could signal a pause to the downtrend to mark a retracement before continuing it.

Resistances: Psychological level 1.24000, Fibo 61.8% and psychological level at 1.25000, SMA of 20period at 1.27000, from there to the level broken 3 weeks ago at 1.30000.

Supports: Lows at 1.23000 tested the last 2 days without breakout and 1.21000 both marked in 2020 before the psychological level of 1.20000 that joins the Fibo level 78.6% at 1.20162.

ADX at 47.18 with range, +DI8.45 neutral bias, -DI 22.52 with bearish bias. ADX very close to the limit at 60 and already showing signs of exhaustion. 

 

GBPJPY

For this pair there is an interesting panorama since on the part of the BOJ there is  management of interest rates that the bank intends to remain low, and on the part of the BOE the increases already given with the possibility of a continuation of these monetary tightenings.

GBPJPY has downward pressure due to the appearance of the pattern known as shoulder head shoulder, which had a maximum at 168,418 on April 20 and has currently broken the SMA of 21 daily periods with several touches such as PB and fall to the collarbone that is marked by an area that joins the psychological level of 160,000, the SMA of 50p 1D at 160,051 and the Fibo 50% at 159,693. If the collarbone is broken with its typical PB, the pattern would have a fall target of approx. 800 pips, almost at the beginning of the cycle that started at the beginning of March, below the SMA of 100 and 200 daily periods, in addition to the strong level that took 3 previous highs to break the Fibo 61.8% at 157,634 and Fibo 88.6% at 152,957. If there is a failure to break the collarbone, we would see the typical upward movement that would have to overcome the previous 2 highs marked by the right shoulder and the head of the skipper to catapult to 2015 highs at 190,000.

ADX is marking 25.70 after falling from its high above 60, +DI at 11.61 bearish bias, -DI at 15.98 bearish bias. The upward trend is slowing, and a rebound at the level of 25 with a cross of -DI above the +DI would start a downtrend or in case it falls below 25 we would expect to drill upwards of this level to confirm a trend.

EURGBP

EURGBP has been in an expansion channel for more than a year with bearish bias leaving lows at 0.82000 where it recovered its bullish guideline marking a higher minimum than the previous one, which catapulted the price to break the SMA of 200 daily periods and its bearish guideline with a strong power candle of more than 100 pips 3 days ago marking a high at 0.85900 in a test of the highs of December and November 2021.  This bullish break could be the change of trend for the upside; if the previous highs are passed and the main one that would be the beginning of the atonement pattern that is at the psychological level 0.87000 and we would be looking for a target above the level 0.89000 which was a break level for the beginning of the downtrend in 2021.

ADX at 47.64 with bullish bias, +DI at 23.19 -DI at 4.74. Confirmation of uptrend since April.

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Larince Zhang 

Market Analyst

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