Market update: British pound ahead of UK GDP – GBP/USD, EUR/GBP, GBP/JPY set-ups

No sign of improved sterling performance

The British pound is testing crucial support against the US dollar ahead of UK gross domestic product (GDP) data due later Wednesday. The pound has been underperforming against some of its peers in recent weeks and, so far, there is no sign of reversal.

The mixed UK jobs data on Tuesday did little to alter the soft bias. The blistering wage growth seals the case for a 25-basis points rate hike by the Bank of England (BoE) when it meets on September 22. 

BoE Governor Andrew Bailey last week said interest rates might rise further due to stick price pressures, but the central bank is “much nearer” to ending its tightening cycle. The key focus now shifts to UK GDP for July – expected 0.4% on-year, down from 0.9% in June. The three-month average, however, ticked up to 0.3% in July from 0.2% previously. 

GBP/USD daily chart

GBP/USD: testing vital support

On technical charts, the failure so far this month to rise past immediate resistance at the early-August high of 1.2820 has kept the downward bias intact for GBP/USD – a risk highlighted in the previous update.

Furthermore, in a sign of weakness, GBP/USD has failed to hold above vital converged support on the 89-day moving average, the lower edge of the Ichimoku cloud on the daily charts, and the end-June low of 1.2600. On the previous two occasions since the end of 2022, the pair has rebounded from similar support (see the daily chart). 

GBP/USD 240-minute chart

GBP/USD tests a crucial cushion

The pair is now testing a crucial cushion on the 200-day moving average (MA) – the last time it was decisively below this average was in 2022. So, a hold above is key for the broader bias to stay constructive.

From a medium-term perspective, the rise in July to a multi-month high has confirmed the higher-tops-higher-bottom sequence since late 2022, leaving open the door for some medium-term gains.

GBP/USD monthly chart

Look out for a higher 'high'

Importantly, as pointed out late last year, a higher high this year (relative to 2022) could be unfolding into something more than just a corrective rebound, that is, it opens the door for a reversal of GBP/USD’s medium-term downtrend

Whether the medium-term rebound is the start of a long-term uptrend? To be fair, such evidence is lacking. GBP/USD remains below major resistance on the 89-month moving average and the Ichimoku cloud on the monthly charts, coinciding with a downtrend line from 2014, suggesting the long-term downtrend is yet to reverse. 

EUR/GBP: Still holding above Q2-2023 support line

EUR/GBP continues to hold above the converged floor on a horizontal trendline from June and another horizontal trendline since late 2022 (at about 0.8550-0.8600). Still, unless the cross clears resistance at the mid-July high of 0.8700, the path of least resistance is sideways to down.

EUR/GBP daily chart

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